FATF Paper: The Review of the Standards – Preparation for the 4th Round of Mutual Evaluation

The Review of the Standards – Preparation for the 4th Round of Mutual Evaluation


Second public consultation
June 2011

Foreword


The FATF has now completed its third round of evaluations, and is currently conducting a review of the 40+9 Recommendations to ensure they remain up-to-date and relevant, and to learn any lessons from implementing and evaluating the current Standards. This is a limited and focused review, seeking to address any deficiencies and emerging threats but to maintain the necessary stability in the Standards as a whole.

Work on this review has been underway for two years, and between October 2010 and January 2011, the FATF undertook a public consultation on the first phase of its review of the FATF Standards. The FATF would like to thank all those who submitted comments. The response to the consultation was very significant, both in terms of the number of submissions received and their content; and the FATF greatly values this input from the private sector and civil society.

Detailed work has continued since then on a second phase of the review of the Standards, and the results of that work are set out in this paper for consultation. The FATF is committed to maintaining a close and constructive dialogue with the private sector, civil society and other interested parties, as important partners in ensuring the integrity of the financial system. Following this consultation we will take the opportunity to have further discussions on the proposed revision of the Standards with the FATF’s Consultative Forum later this year. I look forward to seeing our dialogue lead to stronger, clearer, and more effective FATF Standards.

Luis Urrutia, FATF President

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Publication: Illicit money: how much is out there?

Criminals, especially drug traffickers, may have laundered around $1.6 trillion, or 2.7 per cent of global GDP, in 2009, according to a new report by UNODC. This figure is consistent with the 2 to 5 per cent range previously established by the International Monetary Fund to estimate the scale of money-laundering.

Less than 1 per cent of global illicit financial flows is currently being seized and frozen, according to the report Estimating illicit financial flows resulting from drug trafficking and other transnational organized crime. "Tracking the flows of illicit funds generated by drug trafficking and organized crime and analysing how they are laundered through the world's financial systems remain daunting tasks," acknowledged Yury Fedotov, Executive Director of UNODC.

Launching the report in Marrakech, Morocco, during the fourth session of the Conference of the States Parties to the United Nations Convention on Corruption, Mr. Fedotov said that the Conference served as an apt reminder that corruption could play a major role in facilitating the entry of illicit funds into legitimate global financial flows, adding that investments of "dirty money" could distort the economy and hamper investment and economic growth. The aim of the study is to shed light on the total amounts probably laundered across the globe and to advance research on the topic. "But as with all such reports, we will continue to refine the figures to provide the truest possible estimates," said Mr. Fedotov.

The UNODC report estimates that the total amount of criminal proceeds generated in 2009, excluding those derived from tax evasion, may have been approximately $2.1 trillion, or 3.6 per cent of GDP in that year (2.3 to 5.5 per cent). Of that total, the proceeds of transnational organized crime - such as drug trafficking, counterfeiting, human trafficking and small arms smuggling - may have amounted to 1.5 per cent of global GDP, and 70 per cent of those proceeds are likely to have been laundered through the financial system.

The illicit drug trade - accounting for half of all proceeds of transnational organized crime and a fifth of all crime proceeds - is the most profitable sector. The study paid particular attention to the market for cocaine, probably the most lucrative illicit drug trafficked across borders. Traffickers' gross profits from the cocaine trade stood at around $84 billion in 2009. While Andean coca bush farmers earned about $1 billion, the bulk of the income generated from cocaine was concentrated in North America ($35 billion), followed by West and Central Europe ($26 billion). Approximately two-thirds of that total may have been laundered in 2009. The findings suggest that most profits from the cocaine trade are laundered in North America and in Europe, whereas illicit income from other subregions is probably laundered in the Caribbean.

Once illegal money has entered the global and financial markets, it becomes much harder to trace its origins, and the laundering of ill-gotten gains may perpetuate a cycle of crime and drug trafficking. "UNODC's challenge is to work within the United Nations system and with Member States to help to build the capacity to track and prevent money-laundering, strengthen the rule of law and prevent these funds from creating further suffering," said Mr. Fedotov.

Source: UNODC

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ML/TF Trends and Indicators in the MENA Region

The 12th MENAFATF Plenary Meeting (Doha, State of Qatar, November-December 2010) adopted, based on the TATWG recommendation, the typologies report on "ML/TF Trends and Indicators in the MENA Region" which was prepared by the MENAFATF Typologies Expert Group. The report includes ML/TF trends and indicators in the region; a list of the additional suspicion indicators is attached thereto.

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Source: MENAFATF

Global Anti-Money Laundering Survey 2011 (KPMG)

KPMG annouces the latest Anti-Money Laundering (AML) survey exploring where AML fits into the changing risk and regulatory landscape facing the financial sector. It reports the views of the survey participants on their areas of focus and challenge, and also contains commentary from KPMG.

The highlights of the survey include the following:

• AML is still on the radar of many banks' leadership, but is being squeezed by other priorities.
• AML continues to be a significant and rising expense for banks, but many under-estimate how much it costs.
• PEPs and sanctions are a major focus for banks and governments alike, however both are far from straightforward to get to grips with.
• Transaction monitoring policies and systems are generally seen as satisfactory, but with plenty of room for improvement.
• KYC data is generally collected and updated both robustly and regularly, but there is great variation in the approach used.

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FSA Report: Banks’ Management of High Money-Laundering Risk Situations

Banks’ management of high money-laundering risk situations

How banks deal with high-risk customers (including politically exposed persons), correspondent banking relationships and wire transfers

This report describes how banks operating in the UK are managing money-laundering risk in higher risk situations. It focuses in particular on correspondent banking relationships, wire transfer payments and high-risk customers including politically exposed persons (PEPs).

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Publication: "Barriers to Asset Recovery"

Barriers to Asset Recovery: An Analysis of the Key Barriers and Recommendations for Action

by: Kevin Stephenson, Larissa Gray, Ric Power

English; Paperback; 200 pages; 7x10

Published June 20, 2011 by World Bank

ISBN: 978-0-8213-8660-6; SKU: 18660

It is estimated that the proceeds of crime, corruption and tax evasion represent between $1 trillion and $1.6 trillion per year, with half coming from developing countries. Proceeds are typically transferred abroad and hidden in foreign jurisdictions, thus requiring international cooperation. Various international conventions and agreements require international cooperation on this issue, in particular the United Nations Convention against Corruption; however, only $5 billion in stolen assets have been repatriated over the last 15 years.

This enormous gap reveals that significant barriers continue to impede asset recovery despite the commitments taken by governments, civil society and the private sector. Drawing on the experience of practitioners with hands-on experience, the Stolen Asset Recovery (StAR) Initiative launched this study to identify the barriers to stolen asset recovery internationally, provide brief analysis of the impact of these barriers, and propose recommendations for overcoming these obstacles. This volume is intended to guide policy makers in their efforts to ensure necessary resources and the development of a plan, policy or strategy aimed at eradicating the barriers to asset recovery. In addition, this study proposes actions to be taken by the G20, international organizations, financial institutions, developmental agencies and civil society.

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Publication: Protecting Mobile Money Against Financial Crimes

World Bank Group Publishes: Protecting Mobile Money Against Financial Crimes

A guide to delivering mobile banking services to unbanked clients more effectively

The World Bank Group recently released a new book entitled “Protecting Mobile Money Against Financial Crimes: Global Policy Challenges and Solutions.” The book is a guide to preserving the integrity of mobile banking, which is revolutionizing the way financial services are delivered to unbanked clients in rural and remote areas.

Based on fieldwork in eight markets including Kenya, Malaysia, Mexico, the Philippines and Zambia, and research in more than 10 countries including India and South Africa, the book suggests approaches that help mitigate the risks associated with mobile money. Along with guidance on developing effective anti-money laundering and combating the financing of terrorism (AML/CFT) regulatory frameworks, which could give greater financial access to more people, this book assists the industry in conducting sound and objective risk assessments. It is also the first book to provide practical solutions to the challenge of managing weak identification infrastructure and regulating retail mobile money outlets.

The G20 has placed financial inclusion on its priority agenda, to help over two billion adults worldwide who continue to be exploited by predatory lending practices and deprived of access to financial institutions. According to GSMA, which represents the interests of the global communications industry, more than 80 percent of mobile banking services are located in developing markets but more than 1 billion mobile phone users still have no access to formal financial services.

“The opportunity is ripe to replicate the success of services like Kenya’s M-Pesa, which is used by 9 million adults to save and transfer money,” said Pierre-Laurent Chatain, lead author of the book. Since being launched in 2007, mobile banking service M-Pesa has helped over 40 percent of Kenya’s poorest to start saving without incurring bank fees, expand the reach of their small enterprises, and safely send money to relatives in rural areas, boosting consumer spending in the countryside as a result. “However, poorly designed regulatory frameworks can hamper the delivery of mobile money services,” Chatain added.

As mobile money expands even further into countries like the Democratic Republic of Congo, Lesotho and India, the book provides policy makers and industry stakeholders with frameworks that will enable them to deliver mobile banking services to unbanked clients more effectively.

The book is available for sale at: http://publications.worldbank.org.
It can also be downloaded for free on Issuu:
http://issuu.com/world.bank.publications/docs/9780821386699

Article: Promoting financial inclusion for effective AML/CFT

Abstract: “Financial inclusion” is the delivery of financial services at affordable costs, especially to the disadvantaged and low income populations. Financial inclusion has gained some importance in the last few decades as a result of findings on the impact of “financial exclusion” on development and especially its correlation to poverty.This paper arguesthat access to financial services contributes to human and economic development; and that financial inclusion and effective AML/CFT are complementary to ensure the safety, integrity and soundness of the financial system and the protection of depositors. It calls for the recognition of country specific characteristics of the derived segments of the society, the risks and national priorities in the application of AML/CFT measures, as well as how financial inclusion has been applied with flexible AML/CFT principles. It concludes that inclusive finance does not necessarily mean that everyone who is eligible uses each of the services, but they should be able to choose to use such services if they wish.

by Abdullahi Y. Shehu

Dr. Shehu is Director General of the Inter-Governmental Action Group against Money Laundering in West Africa (GIABA). GIABA is a Specialized Institution of the Economic Community of West African States (ECOWAS), as well as a Financial Action Task Force (FATF) Style Regional Body (FSRB) with its Headquarters in Dakar, Senegal.

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Terrorist Financing, Money Laundering and Tax Evasion: Examining the Performance of FIUs

Jayesh D'Souza, Florida International University, USA

Price: $59.95
Cat. #: K11399
ISBN: 9781439828502
ISBN 10: 1439828504
Publication Date: July 30, 2010
Number of Pages: 175
Binding(s): Paperback

Summary: Using the Balanced Scorecard method for assessment, this book explores the effectiveness of a government’s financial intelligence units in combating terrorist financing. It explores the large-scale misuse of funds to commit financial crimes, describes how easy it is for criminals, and reviews the inter-jurisdictional problems involved. Contributions from politicians, government policy analysts, auditors, regulators, police officers, lawyers, bankers, and academics provide various perspectives. Case studies demonstrate innovative solutions and crime fighting strategies. Although focused on the U.S., Canada, Australia, The European Union, the UK, Spain, and Holland, the strategies apply to all countries.

Source: CRC Press

ARTICLE: Need for a Globally Agreed Upon Definition of Terrorism

Abstract: Globally, terrorism is known to involve the use of violence and threats to intimidate or coerce, especially for political purposes; it is a criminal act that influences an audience beyond the immediate victim. It is out of place that despite the destructiveness of this cruel and evil crime, there is yet to be a globally agreed upon definition for it and this poses problem for the entire international community. This paper states different definitions of terrorism as given by international organisations, states and individuals. It goes further to analyse the different features common to the various definitions of terrorism.  Further to this, the paper highlights the obstacles to having a globally agreed upon definition of terrorism and finally states the benefits of having such an agreed upon definition of terrorism.

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Source: Ozean Journal of Social Sciences 4(3), 2011, 139

by PONNLE SOLOMON LAWSON

Department of General Studies, Federal Polytechnic, Ede, Nigeria

PUBLICATION: Terrorist Financing, Money Laundering, and Tax Evasion: Examining the Performance of FIUs

Summary: Tracking funding is a critical part of the fight against terrorism and as the threat has escalated, so has the development of financial intelligence units (FIUs) designed to investigate suspicious transactions. Terrorist Financing, Money Laundering, and Tax Evasion: Examining the Performance of Financial Intelligence Units provides a thorough analysis of the financing phenomenon from the raising of funds to government agencies’ efforts to interdict them to measuring and monitoring the outcomes of these efforts. 

This volume begins by presenting deep-rooted conflicts in the Middle East, the United States, the Indian subcontinent, Northern Ireland, and South America that have led to modern terrorism. It describes recent developments in counterterrorism and discusses the next steps in intelligence reform. Next, the author discusses how financial crime is committed, examining the source of funds from money laundering and tax evasion among others, and the transfer of these funds. He then covers performance and risk management, and the process of measuring performance using the balanced scorecard method. The book presents an overview of anti-money laundering and counterterrorist financing initiatives in several regions around the globe: the European Union, Asia Pacific, North America, Latin America and the Caribbean, the Middle East, and Africa. It concludes with a survey of experts’ opinions on the efficacy of current programs and recommendations for improving government performance in countering terrorist financing and related money laundering and tax evasion. 

Knowing what to target and how to measure results are essential for performance enhancement in preventing and interdicting financial criminal activity. Establishing the need for accurate assessment of the success and failure of FIUs, the book demonstrates how monitoring and measuring progress is a crucial part of financial interdiction efforts in the fight against terrorism. 

About the Aouthor: Jayesh D’Souza is a doctoral graduate from Florida International University’s Public Administration Program. Mr. D’Souza is a specialist in public policy, finance, and economics and has a number of publications and presentations in governmental financial performance, counterterrorism, economic development, energy and the environment, education, and health care. His past employers include the Government of Ontario and T. D. Waterhouse 

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PUBLICATION: Misuse of the Non-Profit Sector for Money Laundering and Terrorism Financing

The misuse of NPO-generated funds may occur in a number of ways. First, funds may be collected in the name of a legitimate NPO but be disbursed for terrorists rather than altruistic causes. Second, an NPO may be used to launder money or provide legitimate means for the transmission of funds between multiple locations. Third, funds may be misused by the recipients themselves. In any of these scenarios, the NPO may or may not be complicit in or aware of the abuse being committed. There could also be a misuse of NPO vehicles and property to transport or house terrorist operatives, money, and weapons. From the publicly available evidence, there is little to suggest that there is substantial misuse of NPOs for ML/TF. Case studies have shown that opportunities exist and are exploited for ML/TF, but the number of published cases studied is still relatively small. This could suggest that the prevalence of ML/TF misuse is itself low. Conversely, it could indicate there are low detection rates for this kind of illegal activity. The majority of the cases detected involved either the establishment of a sham NPO, in every case a charity, or the exploitation of a legitimate entity to raise, transfer, distribute, or launder funds. The current Australian regulatory regime for the nonprofit sector does not have an overt emphasis on ML/TF issues, although the encapsulation of designated services used by the NPOs under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 does afford good protection.

Author: Samantha Bricknell

Publication Date: 09/2011

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Publication: Money Laundering: Concept, Significance and its Impact

Money laundering is the process by which large amount of illegally obtained money, from drug trafficking, Terrorist activity or other serious crimes, is given the appearance of having originated from the legitimate source. Money laundering has an adverse impact on economy and political stability of country and hence such an activity must be curbed with an iron hand. Therefore, nations of the world must join hands and adopt measures to dismantle syndicates engaged in money laundering by resorting to aggressive enforcement of law. An attempt has been made in this article to explain the Concept, Significance and its impact.

European Journal of Business and Management

by Vandana Ajay Kumar, Department of Laws, Panjab University, Chandigarh

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Publication: The Puppet Masters- How the Corrupt Use Legal Structures to Hide Stolen Assets and What to Do About It

Billions in corrupt assets, complex money trails, strings of shell companies and other spurious legal structures. These form the complex web of subterfuge in corruption cases, behind which hides the beneficial owner- the Puppet Master and beneficiary of it all.

Linking the beneficial owner to the proceeds of corruption is notoriously hard. With sizable wealth and resources on their side, they exploit transnational constructions that are hard to penetrate and stay aggressively ahead of the game.

Nearly all cases of grand corruption have one thing in common. They rely on corporate vehicles- legal structures such as companies, foundations and trusts -- to conceal ownership and control of tainted assets.

The Misuse of Corporate Vehicles takes these corporate vehicles as its angle of investigation. It builds upon cases, interviews with investigators, corporate registries and financial institutions, as well as a 'mystery shopping' exercise that provide factual evidence of a criminal practice. This approach is used to understand the nature of the problem and design policy recommendations to facilitate the investigative process by unraveling the complex world of CVs.

This lucidly written report is solidly built on step-by step arguments and designed to deliver practical, applicable and well substantiated recommendations. It is intended for use by policy makers in developing national legislation and regulation as well as international standard setters. It also provides helpful information for practitioners engaged in investigating corrupt officials and academics involved in the study of financial crime.

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Source: World Bank