Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT)
1. The Fund’s AML/CFT program has evolved considerably from its origins in the early 2000s. This evolution reflects the growing recognition of the importance of financial integrity issues for the Fund. The policies that underpin the program are grounded in the Fund’s mandate to promote economic and financial stability and have been guided by the specific needs and concerns of the Fund’s membership.
2. For close to two decades, the Fund has been playing an important role in the global efforts to fight money laundering (ML), related underlying crimes (the so-called “predicate offenses” or “predicate crimes”),1 TF and, more recently the financing of proliferation of weapons of mass destruction (WMD) (proliferation financing or PF). In light of the negative consequences of these threats, the Fund has been actively involved in shaping the global AML/CFT agenda, assisting its member countries in the implementation of the AML/CFT standard and strengthening financial integrity.
Context and the Foundation of the Fund’s AML/CFT Program – (2000-2001)
3. ML and many underlying crimes, TF and PF are financial crimes with economic effects. Money laundering is the processing of assets generated by criminal activity (such as corruption, drug trafficking, market manipulation, fraud, and tax evasion) to obscure the link between the funds and their illegal origins. Terrorism financing raises money to support terrorist activities, and proliferation financing to support the proliferation of WMD.
4. While ML and TF (and PF) differ in many ways, they often exploit the same vulnerabilities in financial systems that allow for an inappropriate level of anonymity and opacity in the execution of financial transactions. They can also threaten the stability of a country’s financial sector or its external stability more generally. They can result in destabilizing inflows and outflows, as well as in banking crises, ineffective revenue collection, broader governance weaknesses, reputational risks for financial centers, and loss of correspondent banking relationships (CBRs).
5. The integrity of financial systems and of the broader economy is increasingly recognized as a necessity and constitutes a high-level goal of the international community. Effective regimes to combat these threats are essential to protect the integrity of markets and of the global financial framework as they help prevent financial abuses and contain financial crimes. Action against money laundering, related underlying crimes, and terrorist financing and PF thus responds not only to a moral imperative but also to an economic need.
6. The Fund’s work in this area responded to external events and evolved within the context of the global agenda on financial integrity issues, in close cooperation with international partners. Most significantly, these include the Financial Action Task Force (FATF), the global standard-setter for AML/CFT, the FATF-style regional bodies (FSRBs), the World Bank, and the United Nations. Through its diverse membership and global reach, the involvement of the Fund in AML/CFT efforts has contributed to bringing a new dimension and universality to the AML/CFT agenda.
7. Some of the Fund’s early engagement on AML was in the context of the Offshore Financial Center (OFC) Program in July 2000. The OFC program launched an assessment of the vulnerabilities stemming from the use of offshore financial centers including strict bank and corporate secrecy rules that hinder investigation, ineffective financial supervision, arrangements that facilitate money laundering and other financial crime, and loss of tax revenues onshore.
8. The April 2001 Board discussion laid much of the foundation for the Fund’s AML program. While Directors emphasized that the Fund’s role should be strictly confined to its core areas of competence, they endorsed steps to enhance AML efforts, notably in the context of financial stability assessments, technical assistance, and Fund surveillance as well as other operational activities when AML issues are macro-relevant. Following the events of 9/11, a Board discussion on November 16, 2001 highlighted the linkage between ML and TF that could affect security and potentially harm economic prosperity and the international financial system. The Board supported expanding the Fund’s involvement beyond AML to efforts aimed at CFT, in response to the events of September 11, 2001.
Enhanced integration of AML/CFT into the Core Work of the Fund (2002-2014)
9. The April 2001 Board decision sets the foundation for the inclusion of financial integrity issues into surveillance and Fund-supported programs, when deemed “macro-relevant”. In particular, Directors stressed that money laundering issues should be addressed in Fund surveillance when they have macroeconomic effects, including effects arising from financial instability and reputational damage. Many Directors considered that the “macro-relevance” test should also apply to conditionality in the context of Fund-supported programs.
10. The 2011 policy review called on staff to provide guidance on the circumstances where AML/CFT should be examined in the context of the Fund’s bilateral surveillance or financial sector work, leading to the issuance of the 2012 Guidance Note.
11. The 2012 Guidance Note states that AML/CFT issues should be discussed in the context of Article IV consultations in cases where money laundering, terrorism financing, and related crimes (such as corruption or tax crimes) are serious enough to threaten domestic stability, balance of payments stability, or the effective operation of the international monetary system. It also clarifies that financial integrity issues should be raised in the context of Fund-supported programs when they are critical to financial assurances or to achieving program objectives.
12. In 2014, the policy review considered the increasing inclusion of AML/CFT issues in surveillance and Fund-supported programs. Noting that deficiencies in a country’s AML/CFT regime can have important implications for macroeconomic and financial stability, the Board broadly supported the direction taken by staff in including financial integrity issues in Article IV consultations and Fund-supported programs.
Capacity Development in the Field of AML/CFT
13. Capacity development has been a core part of the Fund’s AML/CFT efforts from the onset, with the April 2001 Board decision calling for increasing the provision of technical assistance for members, particularly for capacity building in the preventive areas, such as customer due diligence and record keeping.
14. The 2011 policy review underscored the transformation of the model underlying the Fund’s AML/CFT technical assistance program. Most significantly, in 2009 the Fund launched a donor-supported trust fund—the first in a series of Topical Trust Funds, subsequently referred to as Thematic Funds (TTF)—to finance capacity development in AML/CFT that complemented the Fund’s existing financing accounts.
15. On the occasion of the 2011 policy review, the Board also welcomed the strategic delivery of technical assistance proposed by staff, which aimed to ensure that technical assistance focuses on areas where the Fund’s comparative advantage results in specific, value-adding contributions to global AML/CFT efforts. By directing resources toward medium-term capacity building, the Fund’s AML/CFT technical assistance program focuses on systemically-important countries, middle-income countries, and countries with significant ML, TF or PF risks and areas related to the Fund’s core competencies. The program aims at striking the appropriate balance between bilateral programs for systemically-important members and regional approaches.
16. The first phase of the TTF ended in April 2014. Considering the success of the program and continuing high demand for capacity development in this area, a new phase started in May 2014. The TTF has helped deliver $6.5 million annually in direct technical assistance and training to more than 40 countries.
Emerging Financial Integrity Issues and the Future of the Fund’s AML/CFT Program
17. Since the last policy review in 2014, the Fund’s AML/CFT program has responded to emerging financial integrity issues and to the evolving global agenda, including the concerns expressed by our membership through the International Monetary and Financial Committee (IMFC) and the priorities set out by the Group of Seven (G-7) and the Group of Twenty (G-20). AML/CFT and financial integrity issues have been integrated in the Fund’s various workstreams (e.g., surveillance, Fund-supported programs, Financial Sector Assessment Programs, Assessments) and are addressed in a number of the Fund’s priority areas of work. While separate, these various workstreams inform and support one another. Furthermore, Fund staff continues to provide input to the FATF and FSRBs, as well as the Financial Stability Board, the G20 and other global bodies who are developing policies around AML/CFT and related issues. The Fund’s involvement has been wide ranging from participating in international dialogue in various fora, to reviewing and providing input on policy documents, and publishing on specific topics.
18. In June 2017, the Fund’s Managing Director, Christine Lagarde, highlighted some of these emerging financial integrity issues in a speech delivered at the FATF plenary meeting. These include the fight against corruption and tax evasion, the increasing importance of combating the financing of terrorism, and the need to strengthen and maintain correspondent banking relationships, which are vital for global trade and economic activity.
19. Since 2014, AML/CFT issues have been discussed in a number of important Fund policies and initiatives in areas that have a financial integrity dimension and in which the Fund is playing an increasingly important role. Fund policies in these areas, including governance, correspondent banking relationships, Islamic finance and Fintech, have identified how ML/TF risks may materialize and how AML/CFT measures can provide critical tools to countries in addressing some of these issues.
20. The next review of the Fund’s AML/CFT program is expected to be discussed by the Executive Board in November 2018. This will be an opportunity to take stock of the progress accomplished since 2014 and to consider the Fund’s AML/CFT strategy going forward.
Pursuant to the AML/CFT standard, the ML offense should apply to all serious offenses, with a view to including the widest range of predicate offenses. At a minimum, it should apply to the twenty-one categories of offenses designated by the FATF in its glossary, including, inter alia, participation in organized crime, fraud, drug trafficking, corruption and bribery, and tax crimes.