Financial Action Task Force on Money Laundering

Iraqi banks take aim at money laundering

The Iraqi Private Banks League on Thursday (July 17th) announced new measures to prevent money laundering and terrorist financing attempts.FCA Iraq blast

“The new measures include creating an inter-bank database on suspicious clients, sharing pictures of individuals wanted in connection with financial crimes, and banning dealings with those who do not provide transparent reports on their financial activities and the licenses of their companies approved by security authorities,” said league member Salam al-Khayyat.

The measures may cause banks difficulties, but they are an important step, he told Al-Shorfa.

Source: Al-Shorfa


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.

Nigeria: meaningless headlines in the face of barbarian acts

Nigeria Rated Highly for Curbing Money Laundering reads the 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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CTF/Hawala: India-US crack down on Pakistan terror financing networks

India and the US held a side meeting at the Financial Action Task Force (FATF) plenary last week  to finalise plans for cooperation on identifying and closing down sources of funding to Pakistan terrorist groups. No details have yet emerged on which funding channels are being used to send money to terrorist groups which may be in Pakistan or are using Pakistan as a base for funding.

The FATF’s latest report on terrorist financing focused on the use of hawala, the traditional South Asian underground method of transferring money between cities and across international borders. Briefly, the FATF claims hawala is open to exploitation by FCA - Hawalaterrorist financiers for several reasons, principally:

  • a lack of supervisory will or resources
  • settlement across multiple jurisdictions through value or cash outside of the banking system in some cases
  • the use of businesses that are not regulated financial institutions
  • the use of net settlement and the commingling of licit and illicit proceeds.

A lack of supervisory resources and commitment to effective regulation seem to be the largest sources of concern vis a vis hawala.

This was underlined by news from the Australian Crime Commission’s Project Eligo operation last month, which identified terrorist financing channels built on the back of trafficking and selling narcotics between South America, Australia and the Middle East. The funds in the Middle East were then channelled back to South America to pay for more drugs. This could have been achieved via formal or informal remittance systems.

That said, it is worth remembering that the hawala network is vast, based on trust and used by millions of South Asians to remit money home. A friend of mine regularly received legitimate payments for group tours of India from elderly travellers via a hawala operator ensconced in a jewellery store. What is more, the term hawala is rarely used. Most people refer to the system simply as money transfer.

India-US join hands to crack down financial network of Pak group

New Delhi: India and the US have joined hands to crack down on the financial network and fund-raising activities of Pakistan-based terror outfits.

“India and USA have agreed to work together to crack the financial network and fund raising activities of Pakistan-based terror FCA - TerrorFinanceoutfits and individual terrorists associated with these organisations under the Framework of Indo-US Bilateral discussion,” Minister of State for Home RPN Singh informed Lok Sabha in reply to a written question.

The India-US bilateral meeting, held on the sidelines of the Financial Action Task Force (FATF) in October 2013, facilitated exchange of such information between concerned agencies of both the countries.

Singh said India and the US have also agreed to have cooperation between their agencies in fighting against counterfeit currency and illegal financial transactions under the aegis of the India-US Homeland Security Dialogue.

A sub group of “illicit finance, illegal smuggling of cash, financial fraud and counterfeiting” has been formed to work with the areas of information exchange, capacity building and technical/ research cooperation.

“US Homeland Security and Indian agencies are working together to investigate sources of material and technologies used in the production of FICN,” he said.
Source: ZeeNews 

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FATF: Eight Asian nations on the watch-list – four more still pose risks

At its Paris plenary meeting last week, the Financial Action Task Force produced a revised list of countries under observation for FCA - FATF Logocompliance with the 40 Recommendations on anti-money laundering and counter-terrorism financing. A group of eight Asian jurisdictions are on the list of 24. Four more (4/11) take up spaces on the less friendly “black-list” of nations whose lack of AML/CTF regimes have strategic deficiencies and pose a threat to the international financial system.

Starting with the worst offender, North Korea – or the Democratic Peoples Republic of Korea – is facing counter-measures from the FATF and FATF member countries for failing to address the ongoing risks to the international financial system. Indonesia, Myanmar and Pakistan have not yet implemented a strategy to tackle AML/CTF legal deficiencies and the FATF advises its member countries to evaluate the risks of each jurisdiction vis a vis transactions and business.

In total 24 Asian countries have planned legal frameworks in terms of AML/CTF but have yet to implement them, a group which are almost ready to jump off the list altogether. Nepal, whose lawmakers pushed media interest towards their planned implementation of an Anti-money Laundering Ordinance last week, has remained this section of the watch-list along with Kyrgyzstan, Lao PDR, Mongolia, Papua New Guinea and Tajikistan.

Afghanistan and Cambodia, both in the throws of post-conflict resolution, civil unrest and poverty, were identified in the first circle of FATF hell as not having making sufficient progress. The FATF and Asia Pacific Group on Money Laundering listed several areas of work required in both countries which will aid their elevation from the watch-list, despite their publicised “high-level” commitments to battling financial crime which have not yet resulted in practical changes to the law.

Two Asian nations have made “significant progress” in their work to improve AML/CTF regimes and implement legal frameworks which are robust enough to meet the international standard setter’s requirements. Bangladesh and Vietnam are no longer in the bad books and no longer subject to the FATF’s monitoring process. Both jurisdictions, however, will continues to work closely with the Asia Pacific Group on Money Laundering to improve AML/CTF regimes.

For the full reports from the  FATF – click here


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Maldives: Politicians in deep water with APG on AML legislation

A high-level delegation from the Asia/Pacific Group on Money Laundering (APG) informed MPs on the National Security FCA - MAldivesCommittee yesterday of “negative consequences” for the Maldives if parliament fails to enact anti-money laundering legislation next month.

In an unofficial meeting with the committee’s chair, MP ‘Reeko’ Moosa Manik, and MPs Abdul Azeez Jamal Abubakur and Mohamed Thoriq, APG Co-chair Andrew Colvin warned that the organisation along with the Financial Action Task Force (FATF) “would be left with little option but to take certain measures that would be negative for the Maldives” should the legislation not be passed.

APG Executive Secretary Dr Gordon Hook noted that implementing laws on anti-money laundering and combating the financing of terrorism (AML/CFT) was “an obligation that the Maldives undertook voluntarily when you joined the APG in 2008″ as a condition of membership.

“There are 41 countries in the APG. They include every country in the Asia/Pacific region with the exception of North Korea and three tiny Pacific states. Among those 41 countries of which Maldives is a member, you are the only country without a comprehensive AML/CFT framework,” he observed.

The anti-money laundering bill was submitted to parliament in late 2013 and sent to the National Security Committee for further review.

The absence of legislation “makes Maldives very vulnerable to money laundering and terrorist financing,” Dr Hook said.

He added that the vulnerabilities were identified by the International Monetary Fund (IMF) in a report prepared in 2011.

Maldives Monetary Authority (MMA) Assistant Governor Neeza Imad meanwhile told MPs that the Maldives received a very low rating in an assessment by the APG in 2011, after which the central bank began drafting legislation on AML/CFT.

Technical assistance was provided by the APG and the IMF, she noted.

Countries that are listed by the APG for non-compliance with its standards on AML/CFT face “hindrances” in securing foreign direct investment, opening accounts overseas, and conducting international financial transactions, Neeza said.


Dr Hook explained that the APG in its annual meeting last year made a unanimous decision to send a high-level delegation to the Maldives “to express concern prior to the next annual meeting”.

Elaborating on the consequences, Dr Hook noted that 14 member states were subject to review last year by the FATF through the International Cooperation Review Group (ICRG).

“They have what’s called a blacklist and counter measures list. There’s a lot of countries on that list at the moment and there are varying categories on that list. And it doesn’t matter where you are on the list. There are negative consequences to it,” he said.

The consequences include having overseas credit card transactions blocked for citizens of listed countries and the blocking of incoming wire transfers from European banks, Dr Hook said.

“It would be our concern – and the co-chair has expressed that – that the Maldives should not be the subject of those negative consequences at the very time that the Maldives is working very hard to eliminate public debt and to attract foreign investment,” he continued.

The parliament upon returning from recess has “a small window of opportunity” to pass the bill in March, he suggested.

If the legislation is not enacted before the next meeting of the FATF in June, Dr Hook cautioned that the Maldives’ case would be taken under consideration.

“I can indicate that the Maldives is already on a list of jurisdictions that are under consideration by FATF,” he said.

He added that the Maldives “dodged a bullet” last year because the FATF “looked at PNG [Papa New Guinea] as an alternative.”

A review by the FATF “could take upwards to three years,” Dr Hook noted, “during which you in the Maldives would expend a huge amount of resources to try to deal with the issues.”

“You can dodge that bullet if you enact the legislation,” he advised.

Political will

Following statements by the delegation, MP Moosa Manik said that the committee could complete reviewing the legislation in “24 hours” and send it to the floor for a vote in the first week of March.

The opposition Maldivian Democratic Party MP urged the delegation to seek a commitment from the executive as the ruling coalition had “a clear majority” in the People’s Majlis.

In response, the delegation said it has met with Finance Minister Abdulla Jihad and was planning to meet Attorney General Mohamed Anil as well as officials from the Maldives Police Service and the Prosecutor General’s Office.

The MDP chairperson also alleged that some pro-government MPs could be involved in money laundering and might oppose enactment of AML/CFT laws.

MP Abdul Azeez – a member of the ruling Progressive Party of Maldives – however told the delegation that there was “no political will to delay this bill.”

“We are willing to do this and I think it is our obligation to pass this bill for the sake of the nation. There is no will to delay this purposely,” he said.

In his concluding remarks, Colvin said the delegation was encouraged by the assurances from committee members.

“We will make sure that in our report we reflect that. We will need to get back to the [APG] membership and advise them on the progress and we will look on with much interest in March and hope that the bill can make it through the parliament,” he said.

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Indonesian AML and counter terrorist financing efforts

In February, the Financial Action Task Force placed Indonesia on its list of jurisdictions with strategic anti-money laundering deficiencies. Despite the potential impact on financial aid the listing could have, Indonesia is still unable to pass effective rules on counter terrorist financing. The FATF recommended Indonesia address three specific points:

(1) Adequately criminalising terrorist financing (Special Recommendation II);
(2) Establishing and implementing adequate procedures to identify and freeze terrorist assets (Special Recommendation III); and
(3) Amending and implementing laws or other instruments to fully implement the 1999 International Convention for the Suppression of Financing of Terrorism (Special Recommendation I).

In March, Indonesian police officers from the notorious and elite Detachment 88 anti-terrorist squad. Officers shot and killed five suspected terrorists, who were funding planned attacks through armed robbery, targeting gold dealers and currency exchangers. This typology is well aired among the Indonesian banking compliance unit and the arrests put Indonesia’s CTF efforts on global news wires.

INCSR analysis

The US Department of State’s International Narcotic Control Strategy Report also highlighted endemic corruption as a chink in Indonesia’s AML/CTF armour.

Indonesia has a weak AML/CFT regime, according to the INCSR assessment, a cash-based economy, weak rule-of-law and ineffective law enforcement institutions, the presence of major indigenous terrorist groups combined reduce the impact of international standards and national law.

Non-drug related crimes generate the majority of money laundering activity: corruption, illegal logging, theft, bank fraud, credit card fraud, and maritime piracy, sale of counterfeit goods, gambling and prostitution.

Banks are already required to follow enhanced due diligence procedures for both foreign and domestic PEPs. Although the FATF recommendation on this was only made official in February this year, many financial institutions in Asia, perhaps influenced by other industry groups, had already adopted monitoring domestic PEPs as best practice.

KYC covered entities: Banks, finance companies, insurance companies and insurance brokerage companies, pension fund financial institutions, securities companies, investment managers, providers of money remittance, and foreign currency traders. NB High value goods dealers and lawyers are not covered by KYC rules.

Convictions and the law

There were four convictions for money laundering between January and October 2011.

In October 2010, the Government of Indonesia enacted a new AML law that partially complies with international standards. To meet international standards and ensure effective implementation and enforcement of the law, INCSR recommends staff in both the executive and judicial branches should receive more training on AML/CTF.

The PPATK – Indonesia’s Financial Intelligence Unit  – needs a significant increase in staff to meet its responsibilities under the law. In an effort to place some of the legal burden on industry and bank partners, PPATK plans to open three AML centers in different regions of Indonesia to serve as resource centers for organizations that must comply with the new regulations. There is hope that this will place some of the legal burden on AML/CTF on to practitioners and bank partners. How this will happen remains to be seen and will be a focus of discussion at the 4th Annual ACAMs Conference in early April.

Despite a reported high-level commitment to the action plan developed to address some of the persistent gaps in its AML/CFT legislation, the government has not met its projected timeframes. Essential draft CFT legislation will not be submitted to parliament until at least early 2012.

The October 2010 AML legislation only provides for the temporary suspension of terrorist assets linked to the UN list of designated terrorists and terrorist organizations and does not allow for an immediate and ongoing freeze.

Corruption, particularly within the police ranks, impedes effective investigations and prosecutions. Prosecutors and judges should be given additional training on tracing and documenting financial flows and presenting this evidence convincingly in court.

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