FATF

Abu Dhabi proposes 50 year zero tax zone?

A report in the Khaleej Times from 1st July on proposed regulation for the Abu Dhabi Global Market hides an interesting nugget, way down in paragraph six.

A palace overlooks Abu Dhabi Yacht Club - a high roller's playground?  Image: wavejourney.com

A palace overlooks Abu Dhabi Yacht Club – a high roller’s playground? Image: wavejourney.com

“Abu Dhabi financial zone will offer a zero-tax environment for 50 years. In the launch phase, the financial hub will benefit from Abu Dhabi’s natural strength, ie private banking, wealth management and asset management and will grow according to market demand to eventually become a broad based financial hub.”

Great news for private and corporate clients who want to take a break from paying taxes, but how does this sit with the rest of the world’s focus on tax crimes? Will parking funds in the ADGM and avoiding coughing up your dues in the place you make your money be OK? Time will tell.

Abu Dhabi is a part of the United Arab Emirates, a member of the Financial Action Task Force’s regional body – MENAFATF.

 

 

Blacklists, PEPs, corruption and regulation. How is 2015 looking so far?

January 15th saw a round of face to face meetings for jurisdictions found to be lacking in the last FATF plenary, with the APG ML in Sydney.

Cambodia, Lao PDR, Pakistan, Afghanistan and Papua New Guinea  all made the last list.  Of the four countries on the high risk list three are in the Asia Pacific region – DPRK, Myanmar and Indonesia. The DPRK  has written to the OECD affirming its commitment to anti-money laundering and has apparently joined the APG as an observer.

Cuba managed to wriggle off the list of high-risk jurisdictions. While we have heard nothing much about its AML efforts, we can only assume that its new found close friendship with the White House has bought the former closed state a little wiggle room. Expect more news on trade barriers opening with Cuba.

ABC – Anti-bribery and corruption

This first ABC story provides a barometer for how the anti-corruption campaign is taking effect in Turkey. A parliamentary committee in Turkey has voted not to pursue investigations into four former ministers accused in a corruption scandal that implicated former Prime Minister Erdogan. Nine members of the 14-strong commission were members of Erdogan’s AK Party. Read more here.

The former president of Taiwan, Chen Shui-bian , currently in the fourth year of a 20 stretch for corruption, has been granted medical leave for brain surgery. But it’s not all rosy for Chen, who is facing a new round of money laundering charges. This time, charges allege he laundered TWD10m (USD321,000) in the proceeds of a bribe through his brother-in-law.

IllegalLogging2

The scale of illegal logging – http://www.illegal-logging.info

Transparency International calling for a bit of light to be shed on what the Solomon islands is doing. A man with close
connections to the logging industry has just been named the new Minister of Forestry for the island nation. Anyone else smell a conflict of interests?

ML and capital flight

Bangladesh – Bank Bangladesh, the central bank and financial intelligence unit has set up a new arm to tackle the high risk areas of TBML and terrorist financing. The move is part of the BB’s initiative to stop capital flight from Bangladesh.

Regulation

CapGemini is predicting a new era of regulation – which is great news  for regulatory professionals. Simplified operations, e-banking,  mobile  banking and other new forms of banking will take prominence, according to the report.

It also echoes a call for a reduction of banker bashing – an easy sport for many, especially those who are not employed in banking. Banker bashing may soon become a thing of the past; not because they all stop taking cocaine and becoming good people , although according to this  Guardian report it has happened , but because new financial firms, relying on new technology, will supersede banks.

Banks are like enormous cruise ships once built in Europe’s shipyards – requiring millions of hands to operate, weighed down by tonnes of heavy metal and taking aeons to change course. New smaller, lighter firms can evolve, develop and zip around the market with as much flexibility as new millennial customers require.

China’s regulators have published new AML guidance to help insurers to play their part in the fight against money laundering. More details are available via a subscription here. Also check the China Insurance Regulatory Commission for more updates.

A sombre note to conclude, and remind us of the battles some of our colleagues face when reporting financial crime to the authorities. Three policemen are under arrest in Vietnam charged with plotting to murder a witness in a bribery case.

First published on the ICA blog in January 2015.

The winds of change have rolled in with the Asian Autumn

Since early October, students in Hong Kong have protested against China’s reneged promise of free and fair elections. This coming from the country who protested last when its citizens lost money en masse due to the misselling of minibonds in 2008. They used to say that HK only protests if the people lose their money. Clearly, this is no longer the case.

Protesters in Hong Kong

Protesters in Hong Kong

Demonstrators are congregating under Occupy Central movement in Hong Kong’s financial centre – the home to massive private banks and numerous boutique finance houses and wealth management companies. they want the monied and the money managers of Hong Kong’s financial and business districts to sit up and take note.

The protests, marred by violent clashes this weekend, are garnering global attention. If Hong Kong succeeds in its bid for elections that are not controlled by business and political interests from Beijing, what developments can we expect in how financial services are supervised?

A PEP with more than one account….

Meanwhile, in the Philippines a large scale corruption case is hitting the headlines. Senator Ramon “Bong” Revilla Jr., his wife, children and siblings held 81 bank accounts which they used to hide the proceeds of corruption, the Philippine prosecutors have alleged in court.

Ramon Revilla Jr - www.imgsoup.com

Ramon Revilla Jr – http://www.imgsoup.com

Having a large number of bank accounts, according to an expert witness from the Anti-Money Laundering Council (AMLC) is a sign of a ‘money laundering scheme.’ While the number of accounts held may be significant in this case, simply having a few bank accounts is not always an indication that the account holder is a money launderer, but incidences of this nature are always worth a closer look. Finding out why a client has several accounts, and then carrying out some link analysis between accounts to verify that their reasons make sense should clear up any suspicions. Of course, if your client is politically exposed person, as Senator Revilla Jr is, there is an even greater urgency to investigate.

Strictly Pacific..

The Asia Pacific Group on Money Laundering (APGML) has issued a statement expressing its concern about Vanuatu, the tiny Pacific island jurisdiction. APGML is concerned that Vanuatu has not criminalised ML/TF adequately, is unable to screen for sanctioned terrorists, does not undertake adequate customer due diligence and has no AML framework for non-banking entities. Vanuatu is a weak link in the APGML’s regional armour, but in terms of the big tax secrecy havens, it is a small player. It did not even rank in Forbes’ 2010 list of the Top Ten Tax Havens. London and Singapore were on the list.

De-risking vs exclusion

The Financial Action Task Force has reacted to warnings that stronger regulation for anti-money laundering and counter-terrorist financing could result in financial exclusion as institutions pull services from jurisdictions and groups deemed not worth the risk. Some on the sector claim that de-risking – as the process is known – would drive the so-called ‘shadow economy’, the use of alternative financial systems which can be both beneficial and nefarious, but are almost certainly unregulated. Now that the banking sector has spent vast resources developing regulatory systems that are meaningful and effective, is there a real fear that the users will turn to unregulated systems simply because they are scrutinised less? Regulators, it appears, are struggling with balancing how to do their job and not stifle innovation.

For Hong Kong, the struggle is a little more pressing. They are balancing their freedom to vote, with Beijing’s desire for control. China may turn out to be a risky partner for Hong Kong, but for the Special Administrative Region, de-risking may not be an option.

First published on the ICA blog in October 2014.

FATF raises profile in 25th year with 8 new objectives

The Financial Action Task Force (FATF) held its annual plenary session in June, announcing the latest additions and deductions to and from its country watch-lists, as well as presenting eight objectives for the coming year.FCA - FATF Logo

Iran and North Korea hold their places firmly in the utterly non-compliant list with the FATF’s 40 recommendations on anti-money laundering and counter-terrorist financing (AML/CTF). AlgeriaEcuadorIndonesia and Myanmar have not made sufficient progress to get themselves off the list of countries under strict supervision by FATF for not making enough progress to change their legal frameworks. Ethiopia, Pakistan, Syria, Turkey and Yemen have and are still being monitored but it appears their efforts are moving in the right direction.

The FATF is no longer monitoring Kenya, Kyrgyzstan, Mongolia, Nepal and Tanzania under the anti-money laundering compliance process.

The objectives

The eight objectives for 2014/15 set out by new FATF President Roger Wylie offer an insight into where the AML/CTF standard setter will focus its resources and could shed light on policy areas relevant to different business sectors.

  1. Raising the profile of the FATF in its 25th year and communicating its continued relevance – we could see the FATF having a stronger voice on the international stage, a sign that governance risk and compliance could be under the spotlight.
  2. Working with the FSRBs to address the issue of regulatory arbitrage – look out for legal changes. As the EU used to call it, ‘harmonisation’ of legal frameworks squeezes out the differences in national policies which makes it easier for an over-arching body to enforce the rules.
  3. Emphasising the effectiveness component of mutual evaluations – it is not what you do, it is the results of what you do that count. The Fourth round of Mutual Evaluations will have an effectiveness pillar; jurisdictions will be assessed on the impact their legal framework is having on achieving the standards set out in the 40 recommendations.
  4. Ensuring quality and consistency in mutual evaluation reports across the global network – FATF Style Regional Bodies (FSRBs), sometimes referred to as ‘associate members’, carry out much of the mutual evaluation legwork and the FATF wants to ensure that they are ‘clear, fair and explicit in their evaluations and reports.’
  5. Promoting meaningful engagement and open communication with the private sector – The FATF has embraced the idea of sharing information with the sector for which it sets the standards. The revision of the 40 recommendations in 2012 was at the behest of the private sector and followed lessons learned by AML/CTF practitioners. The standard setter is also working to a faster pace. Last year’s report on financial crime in new payment products and services took a few years to be researched, produced, approved and published.  In the 12 months since then, the FATF has since published a new report on ‘virtual currencies’ which is a deeper look at a sector that was skimmed in the 2013 report. Look out for more initiatives from the FATF to engage with and learn from the private sector. This training course looks the concept in greater detail.
  6. Working with the G20 on areas of mutual interest, including corruption and beneficial ownership – Financial inclusion is another pillar of the G20 which could come up in the next 12 months. We could see some more work on the financial crime risks associated with new products designed with financial inclusion as an objective.
  7. Considering the risks associated with virtual currency and potential policy responses – Financial Crime Asia goes into more detail here.
  8. Continuing the FATF strategic view discussions, including prioritisation of the FATF’s work – A three year strategy for AML/CTF standards, according to the President’s report.

Bitcoin keeps on turning, AML standards body pays attention

And we’re rolling, rolling, rolling on a river… OK so, it doesn’t scan brilliantly, but any fans of crypto currency and/or Tina Turner will get the joke.

FCA - BitcoinThe Financial Action Task Force (FATF) has produced a study on the financial crime risks associated with crypto or digital currencies, a clear indicator that it is taking the newcomers seriously. The FATF is placing the risks associated with digital currency use and its potential policy responses as a priority for the 2014/15 presidency, expanding on the mention of Bitcoin (BTC) in the 2013 report on financial crime risks in new payments products and services (NPPS) report which grazed the surface of digital currency’s potential.

The report leads with a glossary of terms that the FATF has agreed upon to let readers know what they are referring to and it has adopted ‘virtual currency’ as the common denominator. Financial Crime Asia takes issue with the use of virtual to describe these new currencies that are taking the world by storm. They are, after all as real as a national debt or any fiat currencies governed by central banks; what started off as an algorithm is now worth USD615 per unit. Whether we like it or not, virtual will be the term used by the financial sector when referring to crypto and digital currencies.

The FATF weighs in from the US regulations’ angle, defining convertible and non-convertible ‘virtual currency’; briefly, convertible is something that can be exchanged for fiat currency, such as BTC or Linden Dollars used on the Second Life role playing game. Non-convertible currencies cannot be exchanged – think Q Coins or World of Warcraft Coins. Aligning BTC with currencies used in role playing games is a little confusing, given their increasing use in commerce (Expedia has started accepting BTC and pretty soon Financial Crime Asia will too) and, as pioneered by the States of Jersey last week, in investments. However, the FATF is taking notice and its report will permeate the banking sector nonetheless.

The vast majority of bankers and regulators are interested in BTC at the time of exchange into fiat currency. This is where the FATF sees the potential risks and the opportunity to offer guidance  in terms of anti-money laundering and counter-terrorist financing. That said, the power of BTC lies in its exchange for goods and services and not in whether or not you cash it in for fiat at a favourable exchange rate. Although there are some BTC speculators out there who make money on the exchange rate, the vast majority of users are trading BTC outside of the fiat system. In June, US Marshalls made a sale of USD18m worth of BTC last month and the buyer plans to use them as they are to fund the development of BTC use.

FCA -Emperors new clothesUsefully, the FATF does assess the risks posed decentralised systems of exchange. Although BTC addresses contain the information on every transaction the coin has made, unlike fiat currency, there is some concern that the user’s identifying information is not held on file. This would make monitoring suspicious transactions extremely difficult and would confound law enforcement’s attempts to investigate the malicious use of digital currency. The report looks at Liberty Reserve as an example of this, but let’s face it, LR was practically set up to launder money for crooks. Bitcoin was not. Customers on the Silk Road anonymous market place were restricted to using BTC when buying innumerable goods and services, both legitimate and illegitimate and that is a classic example of how criminals can exploit a financial system, bitcoin is simply the launderer’s new clothes.

The qualities that make BTC brilliant are also those that pose the greatest risks when held up against the fiat monetary systems and AML/CTF. BTC and other Altcoins (Litecoin, Peercoin, Ripple) using the BTC protocol are exchanging without Silk Road. They are transparent, are not bound by central governing body, some are limited by geography – see Auroracoin and Mazacoin – but most are not. We are starting to see some regulators tackle this (Germany has done so, the US is talking about it and a few countries have banned the use of BTC) but more importantly, we are stargting to see more jurisdictions adopting crypto-currency.

The FATF’s report is worth reading as an indicator of where the FATF, OECD and national governments are thinking. In the meantime, BTC keeps on trading.

Related articles

FATF praises S Korea; FSRB lauds Qatar for AML while corruption could lose it the World Cup

The Financial Action Task Force’s bi-annual plenary meeting is happening in Paris this week and South Korea’s anti-money laundering (AML) efforts have already come in for praise.  The Financial Services Commission (FSC) said the plenary meeting of the Financial Action Task Force (FATF) being held in Paris assessed South Korea as having passed the evaluation in 16 key categories that show that the country is enforcing legal and financial procedures and systems compatible to international standards. South Korea will hold the FATF presidency for one year from July. Source: Global Post

Meanwhile the FATF Style Regional Body for the Middle East and North Africa (MENAFATF) has commended Qatar for its significant advances in strengthening the country’s AML legal framework since it enacted an AML law in 2010.Source Gulf News

Back in October 2013, the FATF published a Best Practices Paper on how to use the recommendations to combat corruption, which could come in useful in Qatar given the allegations of corruption surrounding the 2022 World Cup. Some of FIFA’s major sponsors have backed the anti-graft probe; Sony, Adidas, Coca-Cola, Visa and Hyundai/Kia have issued statements relating to the Qatar World Cup bid.

A large publicity blow to the Qatar 2022 campaign came from the US this week, when a senator called for the competition to be moved from the Middle East to the US, who came second in the vote to hold the 2022 contest. While this may or may not have weight in the grand scheme of an international football competition, it does add pressure to FIFA’s investigation of allegations surrounding Qatar’s World Cup bid.

The biggest blows against corruption come when entities lose money and powerful multi-national organisations are in the perfect position to influence global anti-bribery efforts by listening to the tidal wave of public anger at human rights abuses and corruption.

Afghan senate house approve anti-money laundering law

Afghan senate houseThe Afghan senate house – upper house of the parliament on Tuesday approved the anti-money laundering law.

This comes as the Financial Action Task Force (FATF), an international body that sets standards on how countries combat money laundering, threatened Afghanistan with the punishment earlier this year.

The body had also warned that the failure by Afghan government to pass key measures means that it could be blacklisted in the month of June.

Afghan lawmakers in the lower house of the parliament (Wolesi Jirga) approved the law last Monday which was then passed to the Afghan senate house for approval.

The law will be passed to President Karzai after it was approved by Afghan senators.

Anti-money laundering law is part of a two-part legislative initiative designed to combat money laundering, corruption and the financing of terrorism.

Source: Khaama

Nigeria: meaningless headlines in the face of barbarian acts

Nigeria Rated Highly for Curbing Money Laundering reads the AllAfrica.com headline.

Can this be the same Nigeria presided over by Goodluck Jonathan, terrorised by Boko Haram and courted by the US? More than 270 young women have been kidnapped, forced into adopting a medieval religious practice and sold into slavery while their government sits around praising itself for meaningless acts. No amount of publicity for so-called good behaviour will detract from the fact that there are vast swathes of the country which are beyond the government’s control and that it cannot be bothered to search for these young women.

Kidnapped by Boko Haram, abandoned by Goodluck Jonathan

Kidnapped by Boko Haram, abandoned by Goodluck Jonathan

The accolades for the Nigerian Financial Intelligence Unit came during a GIABA – Inter-Governmental Action Group against Money Laundering – meeting in Niger. GIABA is the West African regional body which ensures compliance with the Financial Action Task Force‘s (FATF) 40 Recommendations.

The Economic and Financial Crimes Commission may be doing a good job at clearing up financial crimes on a case by case basis , but they are powerless in the face of  the large scale corruption which keeps Nigerians in check.

Nigeria’s anti-money laundering and terrorist financing framework was last evaluated by the FATF in 2007, under the old ’40+9′ set of guidelines. The FATF issued new guidelines for mutual evaluations back in 2013. The fourth round of mutual evaluations will assess both the technical implementation of the 40 recommendations and how effective the implementation is. The first evaluations under the new methodology will happen in Autumn 2014. While the FATF has not yet set a date for Nigeria’s fourth mutual evaluation, hopefully the new basis will reveal more meaningful information about how effective the AML/CTF framework is.

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Pakistan identifies 26 tax crimes as ML predicate offences

FCA - Pakistan flagThe government of Pakistan is preparing a list of serious tax crimes to be declared as predicate offences under the Anti-Money Laundering Act 2010. A total of 26 offences have been outlined so far, connected to sales tax, income tax and federal excise duty. Making tax crimes predicate offences to money laundering is one of the Financial Action Task Force‘s 40 Recommendations as of 2012.

As of July 1 2013, tax crimes are predicate offences to money laundering in Singapore. The Monetary Authority of Singapore guided financial institutions to  ‘develop, implement and enforce internal policies, controls and procedures that effectively detect, and deter the laundering of proceeds from wilful or fraudulent tax evasion through the financial system.’

The new guidance placed enhanced due diligence requirements on all ‘clients assessed to present high risk of wilful or fraudulent tax evasion.’

In March 2013, the Private Banking Industry Group’s issued the Industry Sound Practices (see Addendum 1, p 29), to ‘safeguard the industry from being used as a platform to harbour proceeds from serious tax crimes, or as a conduit to disguise the flow of such funds.’

Among the firm’s responsibilities is to communicate that clients are responsible for their own tax obligations and assess the bona fides of clients, carefully evaluating the tax-related risks both when taking on a client and via continuous monitoring

Red flags for when to apply EDD to a client and account include:

  • Client requests for holdmail services without satisfactory reasons. Clients can ask a bank to receive correspondence relating to their account. The mail is held for them until they return to the jurisdiction. The service allows a level of privacy or secrecy which the Singapore governmnet n
  • Use of complex structures
  • Non-face-to-face business relationships
  • Negative tax-related reports from media or other credible information sources on the client or on client’s jurisdiction of domicile or tax residence
  • Any additional parameters that a Covered Entity considers pertinent for conducting its risk assessments and due diligence checks.

The Industry Sound Practices also includes a ‘non-exhaustive’ five step process for EDD, including screening adverse or negative news, questioning the source of funds, using information from other financial institutions where legally possible, identifying the beneficial owners.

This guidance was targeted to the private banking sector, some of whose clients have been used to evading taxes and may be less inclined to reveal more details about the source of their wealth as private banking is notoriously discreet and protective of its wealthy benefactors. There was some concern that clients who had traditionally banking in Singapore may begin to move funds to jurisdictions with less rigorous counter-tax crime regimes.

If any readers have seen changes within Singapore, or heard of a client exodus, do please drop me a line.

 

 

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Does Anti-Money-Laundering Work? Rick McDonell of FATF Answers Critics

Sadly, this is hidden behind a subscription to the brilliant WSJ Risk and Compliance Journal…

Have any Financial Crime Asia readers read the interview and would you care to share the details?

Many thanks.

FCA - How ML works cartoon