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IMF Survey Vol.30, No.9 May 2001
Article

IMF Executive Board discusses money laundering, sees it as a threat to financial system integrity

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
January 2001
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Executive Directors welcomed the opportunity to review issues related to money laundering and to consider the staff’s proposals for incorporating work on these issues into the IMF’s and the World Bank’s various activities, as requested by the IMFC. They agreed that money laundering is a problem of global concern—affecting major financial markets as well as smaller ones—and that to address it, international cooperation should be stepped up. Directors also agreed that the IMF has an important role to play in protecting the integrity of the international financial system, including through efforts to combat money laundering. They emphasized, however, that the IMF’s involvement in this area should be strictly confined to its core areas of competence.

Directors recognized that more vigorous national and international efforts to counter money laundering are needed. These efforts should encompass the promotion of sound financial systems and good governance, the design and implementation of judicial and legal reform and other related capacity-building programs, and effective law enforcement. Directors pointed out that financial regulation and supervision, based on internationally recognized standards, play an important role in preventing financial abuse, including money laundering. However, they stressed that financial/supervisory regulation needs to be backed by legal/criminal enforcement.

What the IMF should do

Directors generally agreed that the IMF should take the following steps to enhance international efforts to counter money laundering: intensify its focus on anti-money laundering elements in all relevant supervisory principles, work more closely with major international anti-money laundering groups, increase the provision of technical assistance, include anti-money laundering concerns in its surveillance and other operational activities when macroeconomically relevant, and undertake additional studies and publicize the importance of countries acting to protect themselves against money laundering.

Directors considered that intensifying the focus on anti-money laundering elements in supervisory principles will help ensure that financial institutions have in place the management and risk control systems needed to deter financial abuse. They noted that financial sector supervisory principles already assessed under the Financial Sector Assessment Program (FSAP) include elements that are relevant to money laundering and have an analogue in certain aspects of the FATF 40 Recommendations.

Directors endorsed the proposal to develop a methodology that would enhance the assessment of financial standards relevant for countering money laundering and could be used for preparing reports in each FSAP on observance of all relevant principles. The recently approved expansion of the FSAP and the ongoing offshore financial center assessments will allow an increasing number of members to benefit from the IMF’s work on strengthening financial systems and countering money laundering. Directors agreed that results from such FSAP and offshore financial center assessments could be shared with the international community, with the agreement of the member. Publication and circulation to outside agencies of the assessments would be governed by existing IMF policies.

Directors stressed that money laundering issues should continue to be addressed in IMF surveillance when they have macroeconomic effects, including effects arising from financial instability and reputational damage. A number of Directors considered that the cross-border implications of money laundering should be raised during Article IV consultations, even if it is not macroeconomically relevant for that member but when it had significant externalities for other countries. In this context, Directors agreed that more research into the magnitude and economic consequences of financial abuse, including money laundering, should be encouraged. They also agreed that the FSAP, Offshore Financial Center assessments, and Reports on the Observance of Standards and Codes (ROSCs) can help guide and inform surveillance. With regard to conditionality, many Directors were of the view that the “macro-relevance” test should continue to be applied, but a few Directors were opposed to applying conditionality to anti-money laundering measures.

Directors called on all governments, especially those with responsibilities for major financial markets, to put in place the necessary measures to counter money laundering. They endorsed the staff’s proposals for increased cooperation with the FATF and regional anti-money laundering task forces, including those relating to the exchange of information with these groupings.

It was generally agreed that the FATF 40 Recommendations should be recognized as the appropriate standard for combating money laundering and that work should go forward to determine how the recommendations could be adapted and made operational to the IMF’s work. However, several Directors noted that recognizing the FATF 40 Recommendations did not constitute an endorsement of the nonvoluntary and noncooperative manner in which the FATF applies the recommendations. Most Directors felt that the IMF should cover only those issues in the FATF 40 Recommendations that deal with financial regulation and supervision, and that responsibility for legal/crime enforcement should be left to others. Directors also stressed that the FATF process needs to be made consistent with the ROSC process—that is, the FATF standard needs to be applied uniformly, cooperatively, and on a voluntary basis—and that once this is done, the FATF could be invited to participate in the preparation of a ROSC module on money laundering. They called on the staffs of the IMF and the World Bank to contribute to the ongoing revision of the FATF 40 Recommendations and to discuss with the FATF the principles underlying the ROSC procedures and come back to the Board with a report and proposals.

Directors agreed that the expanded role in combating money laundering should include more technical assistance for members, particularly for capacity building in the preventive areas, with the extra work focusing on adherence to supervisory standards.

Regarding the resource costs arising from money laundering activities, it is clear that additional resources are required for these additional activities, and that the initial estimates will need to be reviewed in light of actual experience. It is noted that there is the potential for some external financing for this specific activity, and any such financing would reduce the impact on the budget. It is too early to request an exact amendment to the budget at this time, but depending on further assessments, management will return to the Board if necessary during the year should a supplemental appropriation be required.

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