2021 National Risk Assessment of Money Laundering and Terrorist Financing
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2021
National Risk Assessment of Money
Laundering and Terrorist Financing
National Commissioner of the Icelandic Police
March 2021Table of Contents
Preface ........................................................................................................................................................................... 2
1 Introduction ................................................................................................................................................................ 4
1.1 Legal environment and monitoring ..................................................................................................................... 4
1.2 On predicate offences of money laundering ....................................................................................................... 7
1.3 COVID-19 ............................................................................................................................................................. 9
2 Methodology and conclusions .................................................................................................................................. 13
2.1 Methodology ..................................................................................................................................................... 13
2.2 Consolidated conclusions .................................................................................................................................. 15
2.3 Risk classification summary ............................................................................................................................... 16
3 Money laundering ..................................................................................................................................................... 17
3.1 Tax fraud as a predicate offence of money laundering ..................................................................................... 17
3.2 Cash ................................................................................................................................................................... 20
3.3 Company operations.......................................................................................................................................... 25
3.4 Financial market ................................................................................................................................................ 38
3.5 Specialists .......................................................................................................................................................... 49
3.6 Gambling ............................................................................................................................................................ 57
3.7 Trade and services ............................................................................................................................................. 62
3.8 Other .................................................................................................................................................................. 65
4 Terrorist financing ..................................................................................................................................................... 67
4.1 Transport of assets out of the country .............................................................................................................. 69
4.2 Non-profit organisations operating across borders........................................................................................... 70
List of the most important abbreviations .................................................................................................................... 72
References ................................................................................................................................................................... 73Preface
The risk assessment of money laundering and terrorist assessment for the country. Under the provision, the
financing for Iceland published here is the third one National Commissioner of the Icelandic Police (NCIP)
issued. The first risk assessment for Iceland was sees to the preparation of the risk assessment that
published in 2017 and the second in 2019. This risk must be updated every two years or more often, if
assessment entails a re-examination and update of needed.
the risk assessment in 2019 published that year in
April. Since the publication of the last risk assessment,
various things have happened in Iceland regarding this
The history of the risk assessment goes back to issue category. One could say that the beginning is
September 1991 when Iceland entered into traceable to the serious deficiencies in Iceland's
collaboration with the Financial Action Task Force defences that emerged in FATF's mutual evaluation
(FATF), which is an international action group against report published in April 2018.2 Major improvements
money laundering and terrorist financing. FATF has were made here in Iceland since the draft of the
issued recommendations on the measures member report became available at the start of 2018. The
states shall take in response to the threat stemming improvements were based on the close cooperation
from money laundering and terrorist financing. FATF's of many governmental units and institutions that
40 recommendations have become global guidelines. accomplished a Herculean task in dealing with these
Among other things, the European Union's directives matters.
have been in accordance with these guidelines. 1 By
joining FATF, Iceland obligated itself to coordinate its Then again, in October 2019, FATF decided to place
legislation with the action group's recommendations. Iceland on its "grey list" of states deemed to have
unsatisfactory defences against money laundering
FATF's evaluation of Iceland's defences against money and terrorist financing. Iceland immediately began
laundering and terrorist financing in 2017-2018 working to get off this list. For this purpose, the
revealed various weaknesses in the Icelandic Minister of Justice and the Minister of Finance and
legislation regarding this. Subsequently, Iceland Economic Affairs launched preparations for a report
began working on its response. Among other things, it on what led to Iceland ending up on FATF's "grey list"
entailed legalising the European Union's Fourth Anti- and the reasons for this.3 At its annual meeting in June
Money Laundering Directive. In accordance with the 2020, FATF declared that Iceland had satisfactorily
requirements that may be inferred from FATF completed measures and reforms regarding its
Recommendation no. 1, it is assumed in the defences against money laundering and terrorist
aforementioned directive that all member states shall financing. Following this, the parties arranged for
carry out a risk assessment of the main threats and FATF to visit the country to confirm this and ensure
weaknesses stemming from money laundering and that there would be the required political will to
terrorist financing within the areas each member maintain these results in the future. This involved
state controls. Such risk assessment is fundamental FATF's “on-site visit”. The global coronavirus
when it comes to assessing whether anti-money pandemic limited travel options considerably, and the
laundering and anti-terrorist financing measures are on-site visit had to be postponed for the summer of
adequate. Art. 4 of Act no. 140/2018 on Measures 2020. The on-site visit went on at the end of
against Money Laundering and Terrorist Financing September the same year, and in October FATF's
(AML Act) legalised Iceland's duty to draft a risk annual meeting decided that Iceland's name would be
1 International Standards on Combating Money Laundering á „gráa lista“ FATF (Report of the Minister of Justice and the
and the Financing of Terrorism & Proliferation. FATF, Paris Minister of Finance and Economic Affairs on the lead-up to
2020. and reasons that Iceland ended up on FATF's "grey list").
2 Mutual Evaluation Report of Iceland. FATF, Paris 2018. Iceland's Government Offices, Reykjavik 2019.
3 Skýrsla dómsmálaráðherra og fjármála- og efnahags-
ráðherra um aðdraganda og ástæður þess að Ísland hafnaði
2taken off FATF's “grey list”. country. In essence, the methodology entails first
analysing the threats and weaknesses related to
The risk assessment is a step in fulfilling Iceland's money laundering and terrorist financing before
obligations to fulfil FATF's standards in this regard. analysing the nature, magnitude and likelihood of
The intention, therefore, is to provide a money laundering and its possible consequences, as
comprehensive analysis of the existing risk of money well as an assessment of necessary measures to
laundering and terrorist financing in Iceland. Among reduce risk that may exist. In presenting statistical
other things, it entails an assessment of the known information, figures were generally from 2019 and
markets and operations that may be particularly 2020.
exposed to such risk. It is anticipated that the risk
assessment will be utilised by not only the Icelandic The risk assessment has provided governmental
Government but also other parties with stakes in authorities and other stakeholders with a powerful
defending against money laundering and terrorist weapon against money laundering and terrorist
financing. financing. It lays the epistemic foundation necessary
to enable the analysis and understanding of the
The risk assessment is prepared in accordance with problem being addressed and thus ensuring that the
the methodology on which FATF builds its instructions existing defences are as powerful and efficient as
for such assessments – with one proviso. The possible. It is also assumed that the risk assessment
methodology is not intended as a general template for will be utilised to not only directly improve defences
preparing for such risk assessments when it comes to against money laundering and terrorist financing but
either money laundering or terrorist financing.4 More also for other purposes like allocating and prioritising
precisely, the methodology entails flexibility and funds, disseminating information, and generally
efficiency to consider the circumstances in each preventing risk.
4 FATF Guidance. National Money Laundering and Terrorist
Financing Risk Assessment. FATF, Paris 2013.
31 Introduction
1.1 Legal environment and monitoring
FATF re-examination and amendments to the above
The international action group FATF was established directive with the European Union's Directive no.
in July 1989 at a summit meeting of the seven main 2001/97/EU. The European Union's fourth anti-
industrial states of the world in Paris. The organisation money laundering and anti-terrorist financing
was founded for the purpose of preparing measures directive no. 2015/849/EC was legalised in Iceland
to prevent the misuse of the financial system to get ill- with Act no. 140/2018 on Measures against Money
gotten money into circulation. In 2001, the Laundering and Terrorist Financing that entered into
organisation stepped up its battle against terrorist force on 1 January 2019. The act also adopted
financing by adding to its project list. selected provisions from the fifth anti-money-
laundering Directive of the European Union no.
The main policy of FATF's role and purview is 2018/843/EC. Several minor changes were made to
threefold. First, to work out standards for the member the Act on Measures against Money Laundering and
states' measures against money laundering and Terrorist Financing since it entered into force.
terrorist financing. Second, to assess the measures of
individual states to introduce these standards, and Iceland now has a comprehensive and developed
third, to investigate and learn to recognise the statutory and regulatory scheme addressing money
measures of those engaging in money laundering and laundering and terrorist financing. The regulatory
terrorist financing. Based on this, FATF has worked out scheme is intended to prevent money that was
recommendations to its member states on anti- possibly obtained unlawfully from entering into
money laundering and anti-terrorist financing circulation in the traditional financial system or being
measures. used for financing terrorism.
FATF evaluates each member state's legislation, rules According to Art. 1 of AML Act, the aim of the act is to
and efficiency and publishes reports on their prevent money laundering and terrorist financing by
measures. Depending on relevance, the organisation's obligating parties engaging in operations that may be
member states have agreed to pressure one another used for money laundering or terrorist financing to
by putting individual states on a special list of know their customers and their operations and notify
"uncooperative states" if they do not fulfil the the competent authorities if their suspicion is
requirements the organisation sets. Such pressure can aroused, or they become aware of such unlawful
also entail setting stricter requirements for these operations. Accordingly, the act covers parties
states, or parties living there, regarding financial required to give notice under the act and defined as
instruments or the publication of warnings about such. The act imposes duties on these parties,
transactions with parties in those states possibly including instructions regarding the duty to:
entailing a risk of money laundering. - Carry out a risk assessment on operations and
transactions.
Legal environment - Have a documented policy, controls and
Act no. 64/2006 on Measures against Money processes to reduce and control risk stemming
Laundering and Terrorist Financing legalised the third from money laundering and terrorist financing.
Directive 2005/60/EC of the European Parliament and - Investigate their customers' reliability in defined
of the Council. Previously, Act no. 80/1993 on the instances.
same matters had been in force. The act was drafted - Have an appropriate system, processes, and
for the purpose of adapting Icelandic legislation to the procedures to evaluate whether a domestic or
Directive of the Council of the European Union no. foreign customer or beneficial owner (BO) falls
2001/97/308/EEC on anti-money laundering into a risk group because of political ties.
measures. However, that was amended following a
4- Notify the Financial Intelligence Unit (FIU) of The definition of money laundering in the Act on
suspicious transactions Measures against Money Laundering and Terrorist
Financing takes note of the definition of the concept
The act also provides that, in instances defined in in Art. 264 of GPC. Under Icelandic law, all criminal
more detail, it is forbidden to: offences under the last-specified act, or a special
- Offer anonymous transactions. criminal act, can be predicate offences of money
- Participate in or promote transactions intended laundering. All offences leading to financial gain, such
to conceal beneficial ownership. as drug offences, tax law offences, human trafficking,
- Initiate or continue transactions with shell and theft can therefore fall under this rule. In
banks. addition, it is deemed to be money laundering when
the involvement of an individual or legal person in the
The act also prescribes the drafting of a risk handling of gains fits with the basic definition of the
assessment, reports of transactions to the FIU and concept.
analysing of the reports, procedure of obliged entities
and training of their employees, monitoring of Terrorist financing
defined supervisors under the act, as well as coercive Under the provisions of the Act on Measures against
remedies and penalties for violations of the act and Money Laundering and Terrorist Financing, terrorist
regulations set under it. financing is deemed to be when money is acquired,
whether directly or indirectly, for the purpose of using
Money laundering it or with knowledge that it is to be used, wholly or in
A provision of Art. 264 of the General Penal Code part, to perpetrate violations punishable under Art.
(GPC) no. 19/1940 defines money laundering as 100 (a.-c.) of GPC. Under Art. 100 (a) of GPC, the
punishable. punishment for terrorism shall be up to life
imprisonment for someone committing one or two of
Under par. 1 of the provision, whoever accepts, the offences listed in the provision for the purpose of
utilises or otherwise benefits from an offence under causing substantial public fear or unlawfully coercing
the act, or from a criminal offence under another act, the Icelandic Government or a foreign government or
or converts such benefit, transports it, sends, stores, an international institution to do something or refrain
or assists in delivering it, conceals it or information on from doing something, or for the purpose of
its origin, nature, location or disposition shall be weakening or damaging the constitutional system or
sentenced to imprisonment for up to 6 years. Under political, economic or social foundations of a state or
par. 2 of the provision, someone who has committed international institution.
a predicate offence and also commits an offence
under par. 1 of the provision shall be sentenced to the Art. 100 (b) of GPC also provides that anyone directly
same punishment as the rules of the act on or indirectly supporting a person, organisation or
determining punishment regarding two or more group that commits or has the purpose of committing
offences apply, as relevant. This then involves “self- terrorist acts under provision (a) of the article, by
laundering”, i.e., when the same individual commits a contributing money or providing other financial
predicate offence of money laundering and a money- support, supplying, or collecting money or otherwise
laundering offence. making money available shall be sentenced to
imprisonment for up to 10 years. Art. 100 (c) provides
The wording of the provision, as amended in 2009, for imprisonment of up to 6 years for supporting, in
looked to Art. 6 of the United Nations' Convention words or deeds or by persuasion, urging or otherwise
against Transnational Organized Crime, approved by supporting criminal operations or a mutual goal of an
the General Assembly of the United Nations on 15 association or group that has committed one or more
November 2000 and signed by the Icelandic State on offences under Art. 100 (a) or (b) of GPC, and
13 December that year. Also, the provision's drafters operations or goals entailing the commission of one
considered FATF's comments in its report on anti- or more such offences.
money laundering measures in Iceland in October
2006. The above legal provisions have roots in amendments
to the General Penal Code in 2002. These involve
necessary amendments to fulfil the Icelandic State's
5duties under three international anti-terrorist weapons of mass destruction. Finally, the third is Act
resolutions under the auspices of the United Nations. No. 119/2019 on the Obligation of Non-profit
First, this involved an international agreement from Organisations to Register. It applies to all non-profit
15 December 1997 on preventing terrorist bombings. organisations (NPOs) established for the purpose of
Second, this involved an international agreement raising or disbursing funds for the public benefit that
from 9 December 1999 on preventing funding of operate across borders.
terrorist activities, and third, this involved Resolution
no. 1373 of the United Nations Security Council, from Law enforcement institutions and supervisors
28 September 2001. The amendments entailed that Numerous governmental parties have been involved
“terrorism” was defined in criminal law, and such in matters related to money laundering and terrorist
deeds were deemed to be amongst the most serious financing. These parties either see to supervision,
offences in Icelandic law. In addition, financial support policy formulation, or monitoring of the
for terrorist activities was made an independent implementation of the Act on Measures against
criminal offence. Money Laundering and Terrorist Financing or direct
the investigation and/or prosecution of such offences.
Recovery and seizure of unlawful gains Below is a review of the most important parties
Regarding authorisation to seize gains from money- related to the issue category. For a more
laundering offences or terrorist financing, Art. 69 of comprehensive overview, reference is made to the
GPC provides general authorisation to seize gains following organisation chart. See Figure 1.
from an offence or money corresponding to it, in
whole or in part. The same applies to objects Ministry of Justice (MoJ): Supervises the issue
purchased with such gains or replacing it. In addition, category and appoints a steering committee on
when it is not possible to fully prove the amount of measures against money laundering and terrorist
gain, the provision authorises estimating the amount. financing.
As examples of where the provision was applied in an
indictment and conviction for money laundering, see Steering Committee on measures against money
the judgement of the Landsréttur Appeal Court on 29 laundering and terrorist financing: Sees to, for
January 2020 in Case no. 19/2019 and the judgement example, policy formulation and works on integrating
of the Supreme Court of Iceland on 15 December 2016 measures against money laundering and terrorist
in Case no. 829/2015. Both judgements also show the financing.
importance of investigating financial activities in
parallel with predicate offences of money laundering. The Central Bank of Iceland's Financial Supervisory
Authority (FSA): Monitors that the parties specified in
Other bodies of law par. 1 (a.-k.) of Art. 2 of AML Act conduct themselves
Examples of other bodies of law related to the issue in accordance with the act's provisions. This involves,
category include the Act on Criminal Procedure no. for example, financial undertakings, electronic money
88/2008 and the International Sanctions companies and pension funds. FSA, which was
Implementation Act no. 93/2008. Mention must also previously an independent institution, is part of the
be made of recent legislation having the goal of Central Bank of Iceland (CBI) under provisions in the
strengthening defences against money laundering Act on the Central Bank of Iceland no. 92/2019.
and terrorist financing. The first is the Act on the
Registration of Beneficial Owners no. 82/2019. Its Iceland Revenue and Customs (IRC): The agency that
purpose is to ensure that correct and reliable the Commissioner of Revenue and Customs operates,
information on BOs of legal persons is available at all following the amendment of various acts with Act no.
times to analyse and prevent money laundering and 141/2019, entailed the merger of the Directorate of
terrorist financing. Second comes the Act on the Internal Revenue and the Directorate of Customs.
Freezing of Funds and the Designation of Entities on a Iceland Revenue and Customs operates the Business
Sanctions List in relation to Terrorism Financing and Registry, Register of Annual Accounts, Register of
the Proliferation of Weapons of Mass Destruction no. Beneficial Owners (BO Register), and Money
64/2019 (Freezing Act). It prescribes the freezing of Laundering Surveillance (IRC's Money Laundering
assets in line with specified sanctions to hinder Division), which monitors whether the parties
terrorist financing and the scope and financing of specified in sub-paragraphs l-u of Art. 2 (1) of AML Act
6follow the act's provisions. This involves, for example, criminal cases other than those filed by the Director
accounting firms, law firms, estate agencies, and car of Public Prosecutions or the District Prosecutor.
agencies. Also, IRC's Money Laundering Division Directorate of Tax Investigations (DTI) Responsible for
monitors NPOs regarding money laundering and investigations under the Income Tax Act no. 90/2003
terrorist financing under Act No. 119/2019 on the and acts on other taxes and fees levied by IRC or that
Obligation of Non-profit Organisations to Register. the office is entrusted to implement.
Finally, IRC supervises customs affairs and is entrusted
with enforcing other laws and administrative rules National Commissioner of the Icelandic Police (NCIP):
regarding the importation and exportation of goods in Based on Police Act, no. 90/1996, NCIP handles police
accordance with the provisions of Customs Act no. matters on behalf of the minister. Responsible for
88/2005. Customs Iceland is a special unit within the preparing national risk assessment under the Act on
Commissioner of Revenue and Customs that sees to Measures against Money Laundering and Terrorist
customs. The Customs Manager sees to the daily Financing and seeing to investigations related to
supervision and operation of Customs Iceland as the terrorism, including the financing of terrorism.
agent of the Commissioner Revenue and Customs.
Ministry of Foreign Affairs (MoFA): Among other
Financial Intelligence Unit (FIU): Independent things, responsible for the execution of Act no.
administrative unit within the District Prosecutor's 93/2008 on Carrying out International Restrictive
Office. Receives notices of transactions suspected to Measures and the Freezing Act no. 64/2019.
involve money laundering or terrorist financing. Sees
to the analysis of received notices, gathers necessary Ministry of Industry and Innovation (MoII):
additional information, and disseminates analyses to Responsible for supervision. Matters of IRC's
competent parties. Registration Division are under the ministry. Also
responsible for the implementation of the Act no.
District Prosecutor's Office (DPO): Exercises 82/2019 on the Registration of Beneficial Owners and
prosecutorial authority in cases involving offences Act No. 119/2019 on the Obligation of Non-profit
under Art. 100 (a.-c.) of GPC and sees to investigating Organisations to Register.
and prosecuting serious offences under the provisions
of Art. 264 of the same act. The Ministry of Finance and Economic Affairs (MoFE):
Responsible for supervision. Among other things, the
Law Enforcement Agencies (LEAs): Investigate FSA's matters fall under the ministry.
violations under the supervision of the District
Prosecutor or Chief of Police. Police chiefs also file
Figure 1. Government parties and other authorities involved in measures against money laundering and terrorist
financing.
71.2 On predicate offences of money laundering
Predicate offences of money laundering mean were examined. For this purpose, statistical
offences resulting in unlawful gains that are later the information from NCIP's police system (LÖKE) was
object of money laundering. Below is a general utilised.
discussion the predicate offences of money
laundering and their main types, but no specific risk Theft, whether perpetrated as pilfering or a break-in,
classification of such offences is involved. On the is one kind of enrichment offence and a common
other hand, a specific discussion of tax fraud as a predicate offence to money laundering. The definition
predicate offence of money laundering will follow, of theft is the unilateral, illegal, and secret taking of
and those offences will be risk classified based on the assets or energy reserves owned by another person,
risk assessment's methodology. in whole or in part, from a custodian's keeping to
acquire them for enrichment.6 NCIP's National
Iceland is deemed one of the safer countries in the Security Unit has called attention to increase in these
world regarding crime and the frequency of offences, kinds of offences in reports on organised criminal
particularly regarding serious violent offences. 5 activities. The report in 2019 states: “Mobile
Despite this, each year there are many offences that organised criminal groups from Eastern Europe have
can be predicate offences of money laundering. repeatedly come to the country in recent years for the
sole purpose of committing organised burglaries and
Predicate offences of money laundering can all be theft. Police suspect that these groups benefit, in at
offences under the General Penal Code or special least some instances, from the guidance of assistants
penal laws. Examples of common predicate offences residing here in the country.”7
are theft, fraud, embezzlement, tax fraud, drug
offences, and document violations. Drug offences entail the production, import, sale and
distribution, custody, and handling of narcotics.
Information from the police was gathered on the most Offences related to narcotics are amongst the most
common predicate offences (see Table 1). common predicate offences of money laundering.
Furthermore, the most common predicate offences They can be offences against either special penal laws,
where money laundering was investigated in parallel cf. the Narcotics Act no. 65/1974, or the General Penal
Table 1. Main predicate offences of money laundering (ML)
2018 2019 2020*
Number of Number of Number of
Types of offences Total Total Total
offences offences offences
number of number of number of
along with along with along with
offences offences offences
ML ML ML
Theft 4571 51 4637 61 4638 34
Drug offences 483 21 473 37 299 39
Fraud 537 9 596 29 698 23
Embezzlement 65 8 81 22 82 27
Document violations 270 7 328 9 207 5
Total 5926 96 6115 158 5924 128
*Interim figures for 2020.
5www.oecdbetterlifeindex.org/topics/safety/. Operations in Iceland. Risk Assessment Report of the
6 Jónatan Thórmundsson: Þættir um auðgunarbrot. National Security Unit of the National Commissioner of the
Sérstakur hluti (Series on Crimes of Enrichment. Special Icelandic Police). National Commissioner of the Icelandic
Part). Reykjavik 2009, p. 66. Police, Reykjavik 2019, p. 18.
7 Skipulögð brotastarfsemi á Íslandi. Áhættumatsskýrsla
greiningardeildar ríkislögreglustjóra (Organised Criminal
8Code if the offences are major, cf. Art. 173 GPC. The whole or in part, but is in the custody of the
information collected on drug offences solely involves perpetrator, provided that the appropriation is for the
the production, sale, or distribution and import of purpose of enrichment.9 An example of
narcotics but not custody offences. A report from embezzlement, where money laundering could be
NCIP on organised crime in 2019 regarding activities involved, is transferring money from another party's
that are linked with narcotics states: "The assessment or a legal person's account into someone's own
of the police is that organised groups of criminals are account, and these cases are often connected with
operating in this country. Some of them have breaches of trust, cf. Art. 249 GPC.
considerable strength and financial resources. As
these groups grow in strength, it becomes more Document violations are used to either fraudulently
difficult for police to fight against their operations. It acquire money or pretend to be someone else with
is getting easier for them to cover their tracks, and various legal instruments, e.g., through forgery of
financial strength enables them to buy expertise and personal identity papers, cf. the discussion below of
conceal the profits of their activities in legal ID numbers for foreign citizens. Document violations
operations. Such money laundering can directly affect cover forgery, misuse of a document, and wrong use
markets, e.g., because of the better competitiveness of a stamp or imprint. Of the above categories, most
that unlawful gain ensures.”8 cases involve forgery, i.e., 221 cases in 2018, 255 in
2019, and 178 cases in 2020. A number of these cases
Fraud is one type of enrichment offence. It is deemed are traceable to forged identity papers, resulting from
fraud if one person gets another to do something or both document alteration and document forging from
not do something by illegally arousing, bolstering, or scratch. This mainly involves foreign parties coming to
utilising a wrong or unclear idea of his about events Iceland on forged identity papers or using them to
and, thus, obtains money from him or others, cf. Art. obtain an ID number for foreign persons.
248 GPC. The commonest fraud cases in Iceland entail
utilising a specified service or purchasing a product The number of cases regarding money laundering has
without paying for it, e.g., by not paying for taxies or increased greatly in recent years. Altogether, money
not paying for food in a restaurant. Such conduct does laundering was investigated in 250 cases in 2020,
not entail direct unlawful gain that is later laundered. compared to 16 cases in 2017. This increase has
Fraud cases, where money laundering could be resulted from not only more offences being
involved, can be insurance fraud, e.g., by staging committed but also the police's greater emphasis on
damage, payment card fraud where payment cards this category of cases. It has become more common
owned by others are used to fraudulently pay for to investigate money laundering with predicate
products or services, and other kinds of deception offences. In 2018, money laundering was investigated
where a criminal acquires unlawful gain. in 96 cases in parallel with the main predicate
offences of money laundering. In 2019 the number of
Embezzlement falls under enrichment crimes, cf. Art. cases was 158, and in 2020, there were 128. Finally, in
247 GPC. Embezzlement is the unilateral and illegal the period 2018-2020, courts tried dozens of cases
appropriation of things that someone else owns, in involving money laundering.
1.3 COVID-19
The COVID-19 pandemic has greatly disrupted society extensive economic and social effects. The virus
and the operations of important infrastructures. It has appeared in late 2019 and spread relatively quickly
called for heavy restrictions on people's movement throughout the world in 2020. In April 2020, most
across borders. The spread of the coronavirus states had resorted to strict quarantine measures and
occurred with very little lead-up and has had had substantially limited traffic across their borders.
8 Skipulögð brotastarfsemi á Íslandi. Áhættumatsskýrsla 9 Jónatan Thórmundsson: Þættir um auðgunarbrot.
greiningardeildar ríkislögreglustjóra, p. 24. Sérstakur hluti. Reykjavik 2009, p. 151.
9The pandemic has already caused the greatest weakened. In the last quarter of 2020, inflation was
economic global contraction in an entire century, and on average 3.6%, and in January 2021, inflation was
no one knows how long it will last. Besides the 4.3%. However, there are signs that the effect of the
number of people unemployed and the reduced exchange rate lowering on inflation has begun to
quality of life, it is uncertain what the long-term decrease, and that inflation will decrease fast in the
effects of this disturbance to daily life will have on near future. The Gross Domestic Product (GDP) has
people's health and well-being. likewise contracted, and unemployment has
increased. Over the entire year, the GDP has
Responders in the country immediately began contracted an estimated 6.6% in real terms. To a large
systematic collaboration in accordance with response extent, this may be attributed to the coronavirus
plans in January 2020. The first confirmed COVID-19 pandemic. Finally, unemployment has increased. In
infection in Iceland was diagnosed on 28 February December 2020, recorded unemployment was about
2020. The Icelandic Government resorted to extensive 11%, which is an increase of about 6.4 percentage
quarantine measures to restrict the outspread of the points over the same period the year before. 10
virus and reduce the load on the healthcare system,
however, with the aim of disturbing the public's daily The pandemic has had an enormous effect on tourism
life as little as possible. Here, it is worth mentioning and the industries connected to it. Tourism's
the restrictions on or closings of business operations, estimated share of the gross national product was
the general restrictions on the numbers of people and 3.5% in 2020, compared to 8.0% in 2019. 11 In 2020,
distancing restrictions, and instructions on hygiene the number of tourists in Iceland contracted
and use of masks. Measures like extensive scanning, considerably. The total number of tourists arriving in
infection tracing, quarantining, and isolation were the country on flights was less than half a million,
also taken. Likewise, harsh quarantine measures were compared to more than 2 million the year before. This
taken at the border, and these measures, as well as is a decrease of more than 75% from the year before.
the pandemic in general, have had enormous impact Also, the number of passengers on luxury liners
on the tourism industry. decreased by 99.6% from 2019, and only 2300 such
passengers came to the country in 2020, compared to
Vaccination against COVID-19 started in Iceland on 29 500,000 the year before.12 Likewise, the number of
December 2020. It can be said that this marked a flights contracted substantially in the period. From
definite milestone in the battle against the virus. The November 2019 to October 2020, the total number of
goal of vaccination is to build up herd immunity that take-offs and landings was more than 50,000. This is a
hinders the outspread of the pandemic. If the decrease of about 41%, compared to the same period
Government's assumptions materialise, vaccination in 2018-2019.13
against COVID-19 in Iceland will be finished about the
middle of next summer. Whether that milestone will It is also worth mentioning that the number of
be achieved in the country at that time or later, it is bankrupt companies that operated throughout their
uncertain when the economy will revive. It is also clear last fiscal year before going bankrupt increased by 9%.
that traditional life will not resume in the country until In 2020, there were 380 companies with such activity
vaccinations worldwide are well along. that went bankrupt, compared to 350 companies the
year before. Of these companies, 92 were typical
Effect of COVID-19 on the economy and business tourism services (48% increase).14
community
The COVID-19 global pandemic has already greatly The Icelandic Government has assisted companies
damaged the Icelandic economy. Inflation has and individuals to withstand shocks from COVID-19
increased, and the krona exchange rate has
10 Peningamál (Monetary Affairs). Central Bank of Iceland, 12 www.ferdamalastofa.is/is/um-ferdamalastofu/frettir/
Reykjavik, 83rd monograph, 3 February 2021, p. 6 and category/1/heildarfjoldi-erlendra-ferdamanna-arid-2020.
www.hagstofa.is/utgafur/frettasafn/thjodhagsreikningar/ 13 www.hagstofa.is/utgafur/frettasafn/ferdathjonusta/
thjodhagsreikningar-2020-aaetlun/. skammtimahagvisar-ferdathjonustu-i-november-2020/.
11 www.hagstofa.is/utgafur/frettasafn/frettasafn/ 14 www.hagstofa.is/utgafur/tilraunatolfraedi/gjaldthrot-og-
thjodhagsreikningar/thjodhagsreikningar-2020-aaetlun/. virkni-fyrirtaekja-tt/.
10and keep many people from becoming unemployed. hitches in the distribution and production of vaccines,
The Government's responses have included:15 and, in many other places, the pandemic has been on
- The Central Bank lowered interest rates, the offensive. Also, the outlook is for continuing high
increased access of domestic finance companies unemployment, not least for those who previously
to capital, employed foreign exchange reserves worked in travel services. It is uncertain when the
to dampen exchange rate fluctuations and tourism industry will revive. However, one may
started buying state bonds. assume that the current arrangement at borders will
- The Government has provided financial be more or less unchanged for now. Finally, one may
assistance to companies that have had to restrict expect that companies' smaller investments will
or suspend their operations or had a drop in reduce the economy's growth capacity. It is therefore
income due to the coronavirus pandemic. The difficult to predict how fast the economy will recover,
Government's measures have also entailed and this will depend on how successful the battle
helping companies to retain employees on part- against the virus is.17
time work benefits or by paying wages during
termination periods. Threats and weaknesses
- The Government announced various With changed economic and social circumstances in
counterbalancing measures to assist homes and the wake of the COVID-19 pandemic, there are various
individuals to get through the circumstances challenges related to measures against money
spawned by the global pandemic, such as laundering and terrorist financing. The measures the
payment of wages in quarantine, the withdrawal Government has taken to resist the spread of COVID-
of personal savings for free use, and extension of 19 can affect criminals' financial environment and can
income-related unemployment compensation. lead to changed methods for acquiring illegal assets.
- The Government's other main support measures In this context, FATF has pointed out new threats and
are support loans, supplementary loans, tax weaknesses related to money laundering and terrorist
deferrals, and payment shelters. financing.18
The total amount of support provided to companies With increased telecommuting, communications and
and individuals because of the coronavirus pandemic the dissemination of information and data should take
from March to December 2020 was nearly ISK 60 place on the Internet more often than before. In
billion. Of this amount, direct financial support was parallel with these changed conditions, the likelihood
approximately ISK 38.4 billion, postponements of tax of cyber-attacks can increase. In this context, FATF has
payments about ISK 9.7 billion, and loan guarantees pointed out an increase in criminal offences in certain
about ISK 11.8 billion.16 categories, such as fraudulent activities, fraud, and
cybercrime.19 Examples of fraudulent activities that
Economic development will mostly depend on how indicators show are on the rise following the COVID-
successfully the COVID-19 pandemic in Iceland and 19 pandemic include the counterfeiting of products,
other countries is brought under control. Vaccination for example, of health products, and impersonation of
began at the end of last year, and plans call for it to officials. Cybercrimes can entail social engineering to
cover majority of the population around midyear. acquire payment information from individuals or
Also, the quarantine measures, homes' strong companies, such as by phishing and ransomware
position before the pandemic, Icelanders' increased attacks. Fraud cases in Iceland have increased in
domestic consumption, and the Government's numbers the last several years, and most indications
counterbalancing measures have contributed to the point to a further increase in fraud in 2020. Fraud
revival of private consumption. On the other hand, covers cybercrimes and social engineering. However,
uncertainty still prevails. There have been several
15 www.stjornarradid.is/rikisstjorn/covid-19 (retrieved on 17Peningamál.
23 February 2021) and https://www.sedlabanki.is/utgefid- 18 COVID-19-related Money Laundering and Terrorist
efni/tilkynningar-vegna-covid-19/ (retrieved on 2 March Financing. FATF, Paris 2020, p. 5.
2020). 19 COVID-19-related Money Laundering and Terrorist
16 www.hagstofa.is/utgafur/tilraunatolfraedi/ Financing, pp. 6-7.
efnahagsadgerdir-vegna-koronuveirufaraldursins-tt/.
11the criminal statistics from the police do not indicate FATF has also pointed out that the coronavirus
an increase in this kind of fraud in 2020. pandemic could affect the capacity of the
Government and parties subject to mandatory
There is also deemed to be a risk that governmental reporting to execute their mandatory duties related
financial support to companies and individuals, as well to anti-money laundering and anti-terrorist financing
as international financial assistance, will be misused. 20 measures from maintaining surveillance, fulfilling
The total amount allocated from Iceland's State their mandatory duty to notify, executing due
Treasury to support and/or through direct funding to diligences, and working toward international
individuals and companies because of the COVID-19 cooperation.22
pandemic was close to ISK 60 billion from March to
December 2020.21 The implementation of solutions is
in the hands of IRC, the Directorate of Labour, and CBI.
There are no indications of the misuse of remedies or
fraud regarding grants although it is not possible to
rule out that such has happened or will happen.
20 COVID-19-related Money Laundering and Terrorist 22 COVID-19-related Money Laundering and Terrorist
Financing, p. 9. Financing, pp. 11-13.
21 www.hagstofa.is/utgafur/tilraunatolfraedi/
efnahagsadgerdir-vegna-koronuveirufaraldursins-tt/.
122 Methodology and conclusions
2.1 Methodology
Generally - Parties subject to mandatory reporting, when
The risk assessment is the responsibility of NCIP, which preparing a risk assessment, and to strengthen
sees to its operations in broad and close consultation areas where weaknesses have been identified,
with the Minister of Justice's Steering Committee on e.g., with enhanced controls, due diligences, work
measures against money laundering and terrorist processes and employee training.
financing. The members of the Steering Committee are - Scholars, when researching money laundering
representatives of the MoJ, MoFE, MoFA, MoII, DTI, and terrorist financing.
DPO, FIU, the Reykjavik Metropolitan Police, CBI, and - The public, to draw attention to risks of money
IRC. laundering and terrorist financing.
Preparation of the risk assessment began in the fall of Methodology
2020. In carrying out the risk assessment, an attempt The risk assessment is done in line with FATF's
was made to consult extensively with all stakeholders. methodology for doing such assessments. It was based
There was extensive collection of data from on the preparation of the risk assessment in 2019.24
supervisors, law enforcement institutions, FIU, and
other public law bodies. During the data collection, the In examining the methodology, the basic concepts are
reference source was the manual of the Organisation as follows:
for Security and Co-operation in Europe on data - Risk consists of three elements, i.e., threat,
collection for risk assessment regarding money weaknesses/mitigating elements, and
laundering and terrorist financing.23 Information was consequences. The interplay of weaknesses and
also gathered from parties subject to mandatory mitigating factors is that when a mitigating factor
reporting with the mediation of supervisors. Resources exists for a specific risk factor, it reduces
included available statistical information, as relevant. weaknesses of the same risk factor and vice versa.
In addition, data collectors relied on the expertise of In that sense, these factors work together.
those involved in the issue category. - A threat can be an individual or a group of people,
operations or behaviour that can possibly cause
It is anticipated that all those having stakes in defences damage, e.g., to the interests of a state, society,
against money laundering and terrorist financing will and/or the economy. Considering money
utilise the risk assessment, such as: laundering and terrorist financing, a threat can
- Governmental authorities, for example, when stem from criminals, criminal groups, terrorist
formulating policy for the issue category, making organisations, and/or their supporters, funds
an action plan to mitigate an identified risk, controlled by the above parties, as well as
producing educational materials, and setting operations of money laundering and financing of
rules. terrorist activities, in the past, present, and
- Supervisors, for use with risk-based surveillance future. Threat marks a definite beginning point for
and emphases in surveillance. understanding the risk of money laundering and
- The justice system, during investigations and terrorist financing. For this reason, it is important
analysis of the methodology of money laundering to understand, e.g., the environment of the
and terrorist financing. predicate offences of money laundering and gains
from criminal activities, considering the nature,
23 OSCE Handbook on Data Collection in Support of Money 24 FATF Guidance. National Money Laundering and Terrorist
Laundering and Terrorism Financing, National Risk Financing Risk Assessment and FATF Report. Terrorist
Assessments. Organization for Security and Co-operation Financing Risk Assessment Guidance. FATF, Paris 2019.
in Europe, Vienna 2012.
13size, and scope of an assessment of the risk of on whether the analysed threat was low, medium,
such operations. Also, a separate threat high, or very high.
evaluation can be a precursor to a risk assessment
for money laundering and terrorist financing.
- A weakness consists of elements that can affect a Low Medium High Very high
threat, e.g., support or facilitate operations where
a threat exists. In the context of risk assessment The following factors, among others, were considered
regarding money laundering and terrorist when analysing a threat:
financing, one must distinguish between - Environment: Location and geographical factors,
weaknesses and threats, e.g., to remedy the culture, and methods for transport and/or
factors that are weaknesses when it comes to delivery of assets.
defences against money laundering and terrorist - Operations: Knowledge, orchestration of risk and
financing, keeping in mind supervisory control innovation.
and how well states are prepared to cope with - Collaborators: New, unknown, trustworthy, etc.
weaknesses. Weaknesses can also include certain
operations, a financial product or type of service After a threat had been evaluated, an assessment was
and can expose it more to risk regarding money made of whether the presence of weaknesses or
laundering or terrorist financing. The reciprocal mitigating factors would affect both the threat and risk
applies to mitigating factors. classification. By definition, the factors could increase
the risk if they were weaknesses, or, depending on
The first step of the risk assessment was to analyse the circumstances, if a mitigating factor was involved, it
main threats of money laundering and terrorist could reduce the threat.
financing besetting Icelandic interests. After analysing
them, relevant data and information were collected, The categories of weaknesses/mitigating factors
analysed, and evaluated to reach a conclusion on risk examined were:
classification. In structuring the risk assessment, the - Exposure to risk, e.g., how easy it is to misuse
current risk assessments of the European Union and specified operations.
other states were considered. The methodology can be - Risk awareness, i.e., how aware parties are of a
described in greater detail as follows: risk of money laundering.
- Rules and controls, i.e., whether satisfactory rules
Definition. This entails defining the existing threats and and controls are in place. A distinction was made
weaknesses/mitigating factors, in addition to when assessing rules. For them, enacted laws and
considering consequences. The operations or factor administrative directives were referred to.
examined each time is mapped and evaluated as to However, when assessing controls, the internal
whether threats or weaknesses/mitigating factors are rules of companies and agencies were considered.
present. A determination of which operations or - Surveillance, i.e., whether surveillance is in place
factors are at greatest risk and/or pose the greatest and operating.
threat and is necessary to map builds on risk events,
i.e., known examples and cases of money laundering A mitigating factor within each category had an
and terrorist financing. It also builds on risk factors i.e., assigned weight, i.e., low, medium, high, and very high.
known details leading to specified operations, or a The weights of assessment factors were further
factor deemed more exposed to money laundering. specified:
- When a mitigating factor was rated as very high,
Analysis, which entails analysing the nature, scope, and 7.5% was subtracted.
likelihood of money laundering and terrorist financing, - When a mitigating factor was rated as high, 5%
considering all the defined threats and weaknesses, was subtracted.
after taking mitigating factors into account. Based on - When a mitigating factor was rated as medium,
the analysis, the risk is assessed and classified. 2.5% was subtracted.
- When a mitigating factor was rated low, nothing
A matrix, partially based on the European Union's was subtracted.
matrix, was used for the risk classification. Threat-
guided risk classification (on a scale of 1-4), depending
14The maximum lowering was therefore 30% from a Part of the methodology of the risk assessment is to
threat if very high mitigating factors were present in all assess whether it is necessary to take measures to
four categories considered. Weaknesses did not reduce an identified risk, and, if so, which measures are
increase the percentage to the same degree as appropriate. Work will continue on the proposals
mitigating factors. Rather, their assessment involved emerging on processing the risk assessment, and an
an assessment, case by case, of what effect weaknesses action plan for meeting them will be prepared.
had on the existing threat.
2.2 Consolidated conclusions
The consolidated conclusions of the risk classification estate agents, operations of car dealerships and car
made on the basis of the above methodology are as dealers, and products and services. On the other hand,
follows (reference is otherwise made to the risk was deemed medium in operations of limited
accompanying summary of the classification): liability companies, self-governing institutions, and
limited partnerships, other charities and NPOs, BOs,
Money laundering loan operations, cryptocurrencies, operations of funds,
Analysed risk regarding money laundering was trading and services for financial instruments,
deemed very high when it came to tax fraud as a operation of bookkeepers, sweepstakes, precious
predicate offence of money laundering, transport of metals and gems, and ID numbers for foreign citizens.
cash to and from the country, cash transactions, Finally, risk was assessed as low in operations of other
private limited companies, remittances, and collection organisations, pension funds, life insurance
boxes and lottery machines. Furthermore, analysed operations, operations of ship brokers, lotteries, lotto,
risk was deemed high when it came to large and gambling on the Internet.
denomination banknotes in circulation, non-
governmental organisations and other organisations, Terrorist financing
religious and life stance organisations, funds and The risk of terrorist financing because of the transport
associations operating under a certified charter, of assets out of the country was deemed to be medium
deposit operations, payment services, issue of and the corresponding risk of the operations of NPOs
electronic money, foreign exchange, operations of operating across borders was deemed low.
attorneys, operations of accountants, operations of
152.3 Risk classification summary
Low Medium High Very high
Assessment factor Risk classification
Money laundering
Tax fraud
Tax fraud as a predicate offence of money laundering
Cash
Cash – transport to and from Iceland
Cash transactions
Cash in circulation, large denomination banknotes
Companies
Private limited companies
Limited liability companies, self-governing institutions, and limited partnerships
Other organisations
Non-governmental organisations and other organisations
Religious and life stance associations
Funds and associations operating under a certified charter
Other charities and non-profit organisations
Beneficial owners
Financial market
Deposit operations
Loan operations
Remittances
Pension funds
Life insurance operations
Cryptocurrencies
Operation of funds
Payment services
Trading and services for financial instruments
Issue of electronic money
Foreign exchange
Specialists
Attorneys
Accountants
Bookkeepers
Estate agents
Ship brokers
Car dealerships and car dealers
Gambling
Sweepstakes
Lotteries
Lotto
Collection boxes and lottery machines
Gambling on the Internet
Trade and services
Precious metals and gems
Products and services
Other
ID numbers for foreign citizens
Terrorist financing
Transport of assets out of the country
Non-profit organisations operating across borders
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