5 Enhancing the Effectiveness of FIUS
- International Monetary Fund
- Published Date:
- June 2004
Once an FIU is established and has been functioning for a while, it becomes necessary to assess its effectiveness as well as that of the country’s entire AML/CFT system. Such assessments should be conducted periodically to ensure that the FIU and the system as a whole are continuously striving to improve their effectiveness, This is consistent with good public sector management policy and is now also an FATF standard.173
Over time, an effective AML/CFT system’s objective would be to significantly reduce occurrences of money laundering and the financing of terrorism. This would be the result of the preventive and repressive components of the system working in the most effective manner (and assuming a certain degree of stability in the external environment, such as basic criminality patterns and the amount of cooperation received from other countries). Before a definite downward trend can be set in motion, however, fluctuations will be observed in the statistics. The number of suspicious transactions reported, the number of cases prosecuted, and other data will vary from year to year, as know-your-customer obligations are placed on financial and other entities, reporting obligations are fine-tuned, prosecuting authorities acquire expertise in financial crime, and, it must be added, criminals adjust their methods to take into account the new environment.
To attain the maximum degree of effectiveness, all agencies involved—from the reporting entities to the judiciary authorities—need to increase their own effectiveness and to cooperate with each other to form a well-functioning whole. It follows that each component of the system needs to be assessed in terms of its efforts to achieve what is expected of it, even if it is only one part of the total system.
Analyzing the effectiveness of an FIU is not an easy task, given the linkages between its operations and those of the other elements in the AML/CFT system. For example, deficiencies of FIU intelligence might not be attributable to the FIU itself, but to a weakness in other parts of the system. Similarly, the FIU’s output depends, in large part, on the quality of information it receives from reporting institutions, and the FIU can influence such quality only to a limited extent, through training, feedback, and guidance to reporting institutions.174 Also, any bottlenecks at later stages of the process, such as a lack of expertise on financial operations on the part of law-enforcement agencies or the judiciary, may limit the impact of the FIU’s work. An additional source of difficulty in many countries is the lack of a coherent statistical framework covering the different parts of the system.
The international development of criteria and methods to assess the effectiveness of FIUs is at an early stage. So far, the FATF has established as a standard the principle of periodic reviews of the effectiveness of the AML/CFT system, including the FIU, based on a coherent set of statistics maintained by the concerned authorities. The actual reviews of the effectiveness of the FIUs are to be performed by the FIUs themselves or their governing authorities, using such methods as they believe are appropriate.
Collecting Relevant Data
The first step in assessing the effectiveness of an FIU is the collection of data related to the inputs it receives and the FIU’s outputs. Generally, to paraphrase Recommendation 32, competent authorities should maintain comprehensive statistics on matters relevant to the effectiveness and efficiency of the AML/CFT system, including statistics on the suspicious-transaction reports (STRs) received and disseminated; on money-laundering and terrorist-financing investigations, prosecutions, and convictions; on property frozen, seized, and confiscated; and on mutual legal assistance or other international requests for cooperation.
A more detailed, but not exhaustive, list limited to the operations of the FIU would be as follows:175
STRs received—total and breakdown by
type of entity making the report (financial institution, designated nonfinancial businesses and professions);
STRs analyzed, disseminated, and sent for investigation or prosecution;
content, region of origin, amount of currency, possible crimes involved, complexity, etc.;
STRs actually analyzed, used, disseminated, stored, or discarded; and
STRs resulting in prosecution or convictions for money laundering, financing terrorism, or an underlying predicate offense.
Assessments of the quality of STRs.
Reports filed on (i) domestic or foreign currency transactions above a certain threshold; (ii) cross-border transportation of currency and bearer negotiable instruments; or (iii) international wire transfers (if applicable).
Types and frequency of additional information requested.
Amount of information available for competent authorities in each FIU disclosure in terms of the number of
STRs and cash-transaction reports (CTRs) used and linked to the information reported;
reporting institutions involved;
persons or possible suspects identified; and
types of databases queried.
Time taken to disclose relevant information to competent authorities after it is received from reporting institutions.
Requests for assistance made or received by the FIU, including whether the request was granted or refused.
Time taken to respond to each request for assistance made to the FIU.
Spontaneous referrals made by the FIU to foreign authorities.
Frequency and scope of guidance issued to reporting institutions (general and individual guidance) (if applicable).
Response times of reporting institutions to requests for additional information.
Frequency and scope of strategic analysis provided to other competent authorities and policymakers.
Feedback received from law-enforcement agencies, the judiciary, or other authorities.
These data need to be appropriately correlated. For example, a large number of STRs received should not be taken as an indication of FIU “success” without observing whether the reports come from a wide variety of sectors or only one (i.e., banking) and whether the reports contain useful information. Similarly, a low number of cases forwarded by the FIU for further investigation or prosecution does not necessarily indicate that the FIU is ineffective if each case already encompasses the analysis of many STRs or if the value added by the FIU often leads to successful prosecutions.
Identifying Opportunities for Improvement
The analysis of the data collected on each function of the FIU may lead to questions concerning the adequacy of the resources devoted to that particular function. A further analysis of that function may reveal opportunities for improving it. A valuable input in this analysis would be feedback from law-enforcement agencies and other entities that receive the FIU’s information.
For example, the analysis of STRs may appear in need of improvement. If the reports do not usually contain sufficient relevant information, there may be scope for requiring more such information from the reporting entities and other sources. If the data received appear adequate, improvements may be sought in the analysis function. This function requires strong analytical resources to get the most out of the qualitative data received. Enhancing effectiveness of the FIU in this case might require (among other actions) the following:
training analysts in the intricacies of the various reporting industries;
providing analysts with better access to additional sources of information;
adding to the pool of experts through personnel arrangements with specialized authorities such as financial-supervisory or law-enforcement agencies (by, for example, establishing a secondment program with these agencies);
increasing the automation of the reporting system so that the information can automatically feed the FIU’s databases, thereby facilitating the gathering of various reports that are relevant to a single case; and
training the reporting institutions staff on what constitutes a good-quality STR, and what information is useful to the FIU (and what is not).
For each function of the FIU, a number of questions may be raised. Among these are the following:
Legal framework. Does the FIU have the necessary powers to perform each of its functions?
Capacity. Is it operationally and technically capable of performing each function according to its purposes?
Quality of information disseminated. Are the reports from reporting institutions and the FIU’s access to other information adequate to enable the FIU to fulfill its functions? What is the value added by the FIU to the information it receives? Is there a mismatch between what is expected of it and what it delivers? A frequent cause of tension is that police and prosecutorial authorities expect information from the FIU that it cannot deliver and make little use of the other valuable information that is available to the FIU.
Timeliness. Is the information at all stages of the FIU process flowing at the required speed? Are there any bottlenecks within the FIU?
Cost-effectiveness. Is the FIU striving to produce what it must produce in a manner proportionate to its resources devoted to it?
Much more work remains to be done to develop internationally acceptable standards and methods of assessing the effectiveness of FIUs. Gathering experience with the collection and analysis of statistics on FIU performance is a preliminary step toward achievement of this important goal.
FATF Recommendation No. 32 (2003) reads as follows: “Countries should ensure that their competent authorities can review the effectiveness of their systems to combat money laundering and terrorist financing systems by maintaining comprehensive statistics on matters relevant to the effectiveness and efficiency of such systems. This should include statistics on the STR [suspicious-transaction reporting] received and disseminated; on money laundering and terrorist financing investigations, prosecutions and convictions; on property frozen, seized and confiscated; and on mutual legal assistance or other international requests for cooperation.”
An FIU with supervisory powers over AML/CFT matters would, of course, have greater power (and responsibility) to improve the quality of the information it receives from reporting entities.
The list is illustrative only. It includes elements that are set out in the assessment methodology associated with Recommendation 32 and others.