Financing Of Terrorism
Conceptual and Legal Issues
1. In general, money laundering involves the processing of the proceeds of crimes already committed so as to disguise their illegal origin, while the financing of terrorism involves the processing of funds (often legitimately acquired) to be used in future crimes. As a result, many of the measures to deter money laundering, especially those that involve identifying criminal proceeds, are not effective in deterring terrorism. However, while what constitutes “laundering” and “financing” are understood and broadly accepted, what constitutes a predicate crime to money laundering and what constitutes the crime of terrorism are not. Terrorism involves certain actions, such as kidnapping, extortion, assault, murder, or the destruction of property, that are themselves already serious crimes. The concept of terrorism as a separate crime relates to the reason or purpose for which these already serious crimes are carried out.
2. The 1999 International Convention for the Suppression of the Financing of Terrorism, which was adopted by the UN General Assembly but is not yet in force (ratified by only four countries), contains extensive provisions on international cooperation against financing for terrorism. The Convention’s definition of terrorism is based on two alternative criteria: terrorism is either an offense within the scope of one of the treaties listed in the annex to the Convention (e.g., hijacking of aircraft, bombings, taking of hostages) or “any other act intended to cause death or serious bodily injury to a civilian, or to any other person not taking an active part in the hostilities in a situation of armed conflict, when the purpose of such act, by its nature or context, is to intimidate a population, or to compel a government or an international organization to do or to abstain from doing any act.”
3. International law has generally recognized that governments need not cooperate in criminal matters when the act was also political in nature; this is because governments may differ as to whether a violent act might be acceptable due to a compelling political justification. The Convention would exclude this political exception.
4. The Convention also establishes a duty to investigate persons suspected of financing terrorism, to avoid the risk of flight by an offender (or alleged offender), to make terrorism an extraditable offense, and to refer for domestic prosecution those offenders who are not extradited. Prosecutorial discretion is maintained. The Convention provides no sanctions for countries if they fail to cooperate.
5. The Security Council’s Resolution No. 1373 (2001) of September 28, 2001 requires the adoption by all States of certain measures against terrorism, and creates a Committee, chaired by the United Kingdom, to report within 90 days on compliance with the Resolution. The Resolution includes no definition of terrorism.
6. With respect to the financing of terrorism, paragraph 1 of the resolution requires each state to prevent and suppress the financing of terrorist acts, criminalize the willful financing of terrorism, freeze the assets of terrorists and related entities, and prohibit payments to terrorists and related entities. Moreover, the resolution imposes an obligation on all States to “bring to justice” terrorists or persons assisting or funding terrorist activities; although the concept of “bringing to justice” is not defined by the resolution, it would seem that this obligation may be performed either by extraditing the offender or prosecuting the offender in local courts. The same resolution calls upon—but does not require—all states to become parties to the UN Convention for the Suppression of the Financing of Terrorism of December 9, 1999.
FATF Special Recommendations on Terrorist Financing
The following statement was issued following the FATF extraordinary plenary meeting:
7. Recognizing the vital importance of taking action to combat the financing of terrorism, FATF has agreed these Recommendations, which, when combined with the FATF 40 Recommendations on money laundering, set out the basic framework to detect, prevent, and suppress the financing of terrorism and terrorist acts.
Ratification and implementation of UN instruments
8. Each country should take immediate steps to ratify and to implement fully the 1999 United Nations International Convention for the Suppression of the Financing of Terrorism.Countries should also immediately implement the United Nations resolutions relating to the prevention and suppression of the financing of terrorist acts, particularly United Nations Security Council Resolution 1373.
Criminalizing the financing of terrorism and associated money laundering
9. Each country should criminalize the financing of terrorism, terrorist acts and terrorist organizations. Countries should ensure that such offenses are designated as money laundering predicate offences.
Freezing and confiscating terrorist assets
10. Each country should implement measures to freeze without delay funds or other assets of terrorists, those who finance terrorism, and terrorist organizations in accordance with the United Nations resolutions relating to the prevention and suppression of the financing of terrorist acts.
11. Each country should also adopt and implement measures, including legislative ones, which would enable the competent authorities to seize and confiscate property that is the proceeds of, or used in, or intended or allocated for use in, the financing of terrorism, terrorist acts or terrorist organizations.
Reporting suspicious transactions related to terrorism
12. If financial institutions, or other businesses or entities subject to anti-money laundering obligations, suspect or have reasonable grounds to suspect that funds are linked or related to, or are to be used for terrorism, terrorist acts or by terrorist organizations, they should be required to report promptly their suspicions to the competent authorities.
13. Each country should afford another country, on the basis of a treaty, arrangement or other mechanism for mutual legal assistance or information exchange, the greatest possible measure of assistance in connection with criminal, civil enforcement, and administrative investigations, inquiries and proceedings relating to the financing of terrorism, terrorist acts and terrorist organizations.
14. Countries should also take all possible measures to ensure that they do not provide safe havens for individuals charged with the financing of terrorism, terrorist acts or terrorist organizations, and should have procedures in place to extradite, where possible, such individuals.
15. Each country should take measures to ensure that persons or legal entities, including agents, that provide a service for the transmission of money or value, including transmission through an informal money or value transfer system or network, should be licensed or registered and subject to all the FATF Recommendations that apply to banks and nonbank financial institutions. Each country should ensure that persons or legal entities that carry out this service illegally are subject to administrative, civil, or criminal sanctions.
16. Countries should take measures to require financial institutions, including money remitters, to include accurate and meaningful originator information (name, address, and account number) on funds transfers and related messages that are sent, and the information should remain with the transfer or related message through the payment chain. Countries should take measures to ensure that financial institutions, including money remitters, conduct enhanced scrutiny of and monitor for suspicious activity funds transfers, which do not contain complete originator information (name, address, and account number).
17. Countries should review the adequacy of laws and regulations that relate to entities that can be abused for the financing of terrorism. Nonprofit organizations are particularly vulnerable, and countries should ensure that they cannot be misused:
by terrorist organizations posing as legitimate entities;
to exploit legitimate entities as conduits for terrorist financing, including for the purpose of escaping asset freezing measures; and
to conceal or obscure the clandestine diversion of funds intended for legitimate purposes to terrorist organizations.
Aml Elements In Supervisory Principles, And Possible Scope For An Expanded Methodology
Supervisory Principles Related to AML, and the Supporting Legal and Institutional Framework
1. The Basle Committee, IOSCO, and IAIS each have included due diligence reviews on those who control or use regulated financial intermediaries, which includes both fitness tests for owners/managers and know-your-customer rules (KYC). KYC procedures with respect to customers (as amended to include the prevention of terrorist financing) involve (i) identifying if the potential or actual customer (or beneficiary), or the maker or recipient of assets transfers, is a criminal or terrorist; (ii) reporting transactions that suggest criminal activity to the appropriate authorities; and (iii) cooperating with supervisors and law enforcement agencies; and (iv) putting in place anti-money laundering policies, procedures and training.
2. These procedures are designed primarily to control three types of risk, the first two of which relate to the use of institutions for laundering money or financing crime. These are reputational risk (the public’s confidence in the integrity of the institution can be damaged if it is used as a vehicle for advancing serious crime) and operational and legal risk (failure to control money laundering or the financing of terrorism can result in the seizing of tainted assets held by the institution, as well as the imposition of fines or penalties on the institution itself).1 If risk is controlled for individual institutions, risk to the financial system is also controlled.
3. To be effective, principles of financial supervision must be implemented, which requires that supervisors have (i) the authority to require adherence to the supervisory principles and (ii) the means to administer them. Both require that there be adequate sanctions (which can involve regulatory, civil, and even criminal sanctions) to deter noncompliance. This includes having in place both the appropriate statutory authority and effective administrative and adjudicatory institutions (including for civil and criminal prosecution), including procedures for sharing of information relevant to supervision with other domestic and foreign supervisory agencies.
The Current Methodology Document
4. The Fund-Bank AML Methodology Document, which is still in draft form, guides assessment teams in the review of AML elements in Fund and Bank financial sector assessment activities related to the financial sector assessment program (FSAP) and the offshore financial center (OFC) initiative. The methodology document is intended to ensure both comprehensiveness and uniformity in the assessments of the AML elements in financial sector supervisory standards. It is now being used, with agreement of the authorities, in FSAPs in Luxembourg, Switzerland, Sweden, and the Philippines.
5. The starting point for the Fund-Bank Methodology Document was the existing principles of prudential supervision, in the areas of banking, securities, and insurance, determined by the standard-setting bodies. Of particular importance is Basel Core Principle 15 on preventing banks being used by criminal elements; IAIS Core Principles 1–5, 10 and 16; and IOSCPO principles 5, 10–13, 17, 21 and 23. These basic principles are augmented by the criteria developed in the standard-setters’ own methodology papers, additional and later papers by the supervisory standard-setters relevant to AML work, and on the FATF 40 Recommendations.
6. The Fund-Bank Methodology Document assesses the AML elements present within the financial sector supervisory and regulatory framework to ensure that adequate controls and procedures are in place to prevent abuse of the financial system by criminals. Areas covered by the document include requirements for due diligence reviews on those who control or use regulated financial intermediaries (which includes both fitness tests for owners/managers and KYC rules) as a key part of these controls. In all financial institutions, there are four basic anti-money laundering principles that should be adhered to:
comply with anti-money laundering laws, including suspicious transaction reporting, to an administrative body or Financial Intelligence Unit (FIU);
customer identification (KYC rules) and suspicious transaction monitoring;
cooperation with supervisors and law enforcement agencies; and
have in place anti-money laundering policies, procedures and training.
7. These principles are detailed and made concrete in the Methodology Document, which contains numerous specific criteria which should be met by an effective system to discourage and detect money laundering. These criteria include some related to such issues as the ability of the supervisor to share with domestic and foreign financial supervisory authorities information on suspected or actual criminal activities; the obligation of the supervisor to inform the relevant criminal and judicial authorities of suspected transactions; and the incorporation into laws and regulations international sound practices in this area. However, these legal and institutional issues are not covered in detail, and law enforcement issues are not emphasized as they are in the FATF 40 Recommendations. Issues relating to civil and criminal sanctions, including adjudicatory mechanisms, are not now included; nor are those matters that have only a secondary application to supervision, e.g., financial intelligence units (see Annex V). Nonetheless, 19 of the FATF 40 Recommendations have some counterpart in the supervisory principles elaborated in the current draft methodology document.
Possible Expanded Methodology
8. The purpose of the full 40 Recommendations (as amended to include the prevention of terrorist financing) is extensive: to prevent the financial system (as broadly defined) from being used to further crime. To be effective, this requires a host of additional measures that extend beyond financial supervision, but each of which has an analogue in the legal and institutional framework for application of financial supervisory principles. These would include the extension of customer due diligence beyond the supervised sector, the criminalization of money laundering and the financing of terrorism, and the related administrative and adjudicatory institutions.
9. Expanding the Methodology Document to address the legal and institutional framework in which relevant financial policies and supervisory principles are applied would involve, first, elaborating further on some of the issues mentioned briefly in the current document, such as the criterion that the laws and/or regulations embody international sound practices. Second, criteria would be added that correspond to some aspects of several additional FATF 40 Recommendations, notably but not exhaustively recommendations 1–3 on the general framework for the Recommendations (including ratification and implementation of the UN Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances); Recommendations 4-6 on criminalizing money laundering; Recommendation 7 on the legal authority to confiscate laundered property; Recommendation 30 on collecting information on international flows of cash and providing it to the Fund to facilitate international studies; and Recommendations 34 and 35 on establishing a network of bilateral and multilateral agreements, and ratification and implementation of relevant international conventions on money laundering. The expanded Methodology Document could thus cover to some degree about 29 of the FATF 40 Recommendations.
10. The expanded Methodology Document would in addition include criteria related to the FATF Special Recommendations on Terrorism Financing (see Annex I). The criteria in the Methodology Document would be based on the institutional aspects of those recommendations (such as the enactment of legislation to permit the seizure of property that is connected to terrorist financing), rather than those aspects that relate to enforcement (such as the actual freezing of assets).
11. Development of the Fund-Bank Methodology Document is running parallel to work by FATF to develop an assessment methodology for the entire FATF 40 Recommendations. The substantive difference between these two efforts is that the FATF 40 assessment methodology will be used to assess all FATF 40 Recommendations, including criminal and civil law enforcement recommendations. Because of the overlaps between the two efforts, the Fund and Bank are participants in the FATF working group that is developing the FATF 40 assessment methodology. At the October 31, 2001 meeting the FATF working group agreed to incorporate into its assessment methodology the detailed criteria from the Fund-Bank AML Methodology Document dealing with supervisory and regulatory AML principles.
FATF, THE FATF 40 RECOMMENDATIONS, AND THE ROSC PROCESS
Organization of FATF
1. The Financial Action Task Force on Money Laundering (FATF) was created by the G-7 in 1989 to develop and promote global anti-money laundering efforts. Today, FATF has 29 members, whose delegations include representatives of finance and justice ministries, as well as law enforcement, legal, and financial sector regulatory experts.1 The formal work of FATF (policy development, planning, and assessments) is carried out largely through the plenary sessions, which meet normally three times a year. Topical policy development work is prepared by working groups formed from FATF member delegations, meeting in the context of the plenary. Administrative and support functions are performed by a small secretariat based at the OECD. FATF has two principal roles: that of a standard-setter and that of an assessor of compliance with the AML standard.
FATF’s Role as a Standard-setter
2. In 1989, FATF developed an international AML standard—The FATF 40 Recommendations (revised in 1996)—which cover the criminal justice system, law enforcement, international cooperation, and financial system regulation. In 2000, FATF adopted the 25 criteria for assessing compliance of nonmembers with AML principles. These criteria have been used to identify the Noncooperative Countries and Territories (NCCT). Since September 2000, work is underway to revise and update the FATF 40 Recommendations and reconcile them with the NCCT assessment criteria (see below), with the objective of creating a uniform anti-money laundering standard. Following the September 11 events, the revisions also encompass the anti-terrorist financing measures.
FATF’s Role as Assessor of Compliance with AML Standard
3. FATF carries out three types of assessments—self assessments, mutual evaluations, which are reserved for FATF members, and NCCT assessments, which are nonvoluntary and applied only to non-FATF members. Though these assessments have a similar AML objective, the NCCT process is based on the 25 criteria that do not coincide fully with the FATF 40 Recommendations. Under the mutual evaluations for FATF members, noncomplying countries face scrutiny and requests for improvement from fellow members. In contrast, the NCCT assessments include the possibility of countermeasures, if necessary, for countries judged by FATF to be noncooperating. Currently there are 19 jurisdictions listed as noncooperative, although some cases are expected to be reviewed shortly.2
4. The FATF assessments—both mutual evaluation and NCCT—are carried out by experts drawn from FATF member countries and include lawyers, regulators and law enforcement personnel with experience in criminal justice systems, law enforcement and financial sector regulation. The conclusions of these assessments are discussed in the plenary sessions.
Development of a ROSC for the FATF 40 Recommendations
5. In April 2001, the Fund’s (and Bank) Board agreed that the FATF 40 Recommendations be recognized as the appropriate standard for combating money laundering, and the work should go forward to determine how the Recommendations could be adapted and made operational in the Fund’s work. However, at that point most Directors felt that the Fund should only cover those issues in the FATF 40 Recommendations that deal with financial regulation and supervision, and that the responsibility for law enforcement related activities should be left to others. The Fund Board stressed that FATF could be invited to participate in the preparation of a ROSC module on money laundering provided that the FATF AML standard and the assessment process are consistent with the ROSC process—that is, the standard needs to be applied uniformly, cooperatively, and on a voluntary basis.
6. A FATF working group (with Fund and Bank participation) is working on the revisions of the FATF 40 Recommendations and their reconciliation with the 25 NCCT criteria and is preparing an assessment methodology for the FATF 40 Recommendations that could be used to prepare AML ROSC modules. A preliminary draft has been reviewed and discussed at the end-October 2001, FATF plenary meeting and in the working group meeting. The next draft will be presented for the next FATF plenary meeting scheduled. It is envisaged that the drafting of the AML standard and of the assessment methodology will be completed by FATF by February 2002.
Standards Assessments And Roscs
1. The Fund (and Bank) Executive Board endorsed 11 areas and associated standards as useful for their operational work and for which Reports on the Observance of Standards and Codes (ROSCs) could be produced.1 The Executive Board also agreed on a formal procedure for adding new standards to the agreed list, whereby the list should only be reviewed and modified by the Fund Executive Board, in consultation with the Bank when appropriate. It also left open the possibility of inviting other institutions to undertake assessments in their areas of competency.
Key Attributes of ROSCs
The adoption and assessment of internationally recognized standards should remain voluntary.
Assessments need to be independently conducted and consistently applied across countries.
ROSCs should allow for the different stages of country economic development, range of administrative capacities, and the different cultural and legal traditions across the membership.
ROSCs should provide the context for the assessment, including the progress made by the country in implementing standards, and the authorities’ plans for further implementation. In this regard, caution should be exercised to ensure that Fund assessments do not resemble ratings for countries, and are not presented as pass-fail judgments.
Members are to be assessed only against those standards, and those parts of standards, that are relevant to their situation. Accordingly, standards increasingly set out benchmarks for countries at different stages of development.
Financial system standards are assessed generally in the context of FSAPs, and the summary assessments are then presented as part of FSSAs to serve as inputs into overall stability assessments that feed into surveillance, and are also issued as financial sector modules of ROSCs. Other standards, such as fiscal transparency, SDDS, corporate governance, etc., are typically assessed on a stand-alone basis.
Operational Aspects of ROSCs
2. The assessment of a country’s observance of a given standard is based on the work of a mission during which expert staff hold in-depth meetings with the relevant country officials. It may also draw on questionnaires, self-assessments, or other information supplied by the country. Preliminary assessments are discussed with relevant country officials. The ROSC is a short summary assessment, which often draws on a more detailed assessment.
3. ROSC missions have to date been led by staff either from the Fund or the Bank, and often include external experts.
4. The Fund’s Executive Board has recognized the important role that representatives of standard-setters and other institutions have played in developing assessment methodologies and in undertaking assessments, including through participation in assessment missions.
5. The conclusions of ROSCs inform surveillance. ROSCs themselves are background documents to the Article IV consultation and the main conclusions are incorporated into Article IV staff reports.
The Role Of Financial Intelligence Units In Financial Supervision And In Preventing Use Of The Financial System By Criminals
1. Financial Intelligence Units (FIUs) play a variety of essential roles in combating the use of the financial system by criminals. FIUs (most of which have only recently been made operational) are designed principally to receive (and as permitted, request), analyze and disseminate to the competent authorities, disclosures of financial information (i) concerning suspected proceeds of crime, or (ii) required by national legislation or regulation, in order to counter money laundering. In so doing, they turn raw data into financial intelligence that can be used by both domestic and foreign law enforcement agencies to uncover fraud against financial institutions themselves as well as crimes that use the financial system as an instrumentality, including money laundering and the financing of crime.1 FIUs are also typically engaged in other key activities, including:
providing supervisors of the regulated financial sector with information in the context of assessing soundness of financial institutions and in processing license applications;
issuing guidance and monitoring compliance with transaction reporting rules;
conducting research into financial sector crime and recommending policy measures to detect and prevent such crime; and
cooperating with similar entities in foreign countries to address cross-border issues, especially by sharing financial information and intelligence.
2. Some FIUs report to law enforcement agencies evidence of any crimes, including those that are not predicate offenses to money laundering or to the financing of terrorism (e.g., evidence of tax evasion). In addition, some FIUs are engaged directly in law enforcement by investigating evidence of crime through their own initiative or through requests made by law enforcement agencies.
3. In general, FIUs obtain the necessary financial information from four major sources:
mandatory reporting of suspicious financial transactions. There is no single accepted standard governing which institutions have to make mandatory reports. The coverage can include, in addition to regulated financial institutions, any institution or person who regularly engages in large cash transactions or who makes or facilitates financial transfers (e.g., bureau de change, wire transfer agents, casinos, precious metals or gem dealers) and to professional intermediaries of financial services (e.g., lawyers and accountants);
publicly available databases;
exchanges of information with other regulatory and law enforcement bodies, including FIUs, both domestic and foreign; and
investigations undertaken by the FIU, in those countries where it has such powers.
4. Transactions covered by the reporting requirement can be divided into two types: (1) all transactions of a particular type on a systematic basis, and (2) selective transactions that appear to be linked to a criminal activity. Systematic reporting is typically limited to one or more of the following:
any transaction involving cash or other negotiable/bearer instruments in excess of a particular amount;
cross-border transactions involving bearer instruments in excess of a particular amount;
and cross-border electronic transactions of any amount.
5. Selective reporting is made based on the judgment of the person covered by the transaction reporting requirement that the transaction could be linked to a criminal activity. Typically, the selective reporting requirements placed on regulated financial institutions are more rigorous than those placed on others.
6. There is no single model for the organizational structure of FIUs: they can be independent bodies, or offices within a financial supervisory body, or an interagency unit coordinated by a government department such as the Prime Minister’s Office, the Ministry of Justice, the Prosecutor’s Office, or the Ministry of Finance.
7. Because money laundering, terrorist financing, and international fraud often involve numerous jurisdictions, the sharing of financial information among FIUs is an essential element of their operation. Such information can be requested by an FIU if it has reason to believe that another has information or intelligence of relevance, and can also be shared without request if an FIU believes that it has information of relevance to another. Because much of the work of FIUs involves gleaning intelligence from an the analysis of patterns of transactions, the broader the geographic scope of transactions examined the more effective will be the analysis.
8. Because the information handled by FIUs can be of a highly confidential nature, the protection of human rights requires that strict rules of confidentiality be observed. It is also essential that confidentiality be maintained when information is shared among jurisdictions. However, even if a foreign FIU, law enforcement or regulatory body keeps the information confidential, they could still act in other ways that violate human rights. For this reason, a more comprehensive examination must be made of potential foreign recipients of financial information. So far, standards on the conditions under which information can be shared have been established through bilateral agreements. The Egmont Group of FIUs has drafted model bilateral memoranda of agreement with respect to information sharing that covers these issues. There is a trend towards greater regional cooperation in the European Union, the Caribbean and the Pacific Islands region, but there is not yet any global multilateral framework in place.
9. At least with respect to participating jurisdictions, problems of sharing information would be obviated in those instances a single FIU serves more than one country. While it is typical for a country to have its own FIU, recent proposals have been made to create regional FIUs in both the Caribbean and Pacific Islands regions. It has been proposed that these regional FIUs also set and possibly assess standards for the implementation of AML measures in their members (including with respect to confidentiality and the use of information), and that they assist members with lesser developed infrastructure resources in implementing those standards. The role of such proposed regional FIUs could in principle be escalated to a super-regional or even global level.
Elements Of An Anti-Money Laundering Questionnaire
1. The AML questionnaire would inquire about the laws, regulations, institutions and policies in place to deter money laundering and terrorist financing in the context of financial supervision. In lieu of answering the questionnaire, members could refer to recently completed self or mutual evaluations carried out in the context of FATF or FATF-style regional body evaluations, or in the context of FSSAs.
2. The questionnaire could be tailored to the circumstances of the recipient country. Questions at a minimum would include those relating to application of the current version of the Fund and Bank Methodology Document, which address supervisory and regulatory AML elements. These would relate primarily to laws, regulations or supervisors for financial services businesses with regard to: (i) identifying customers and records retention; (ii) recognizing and reporting of suspicious or unusual transactions; and (iii) cooperating with relevant authorities in investigations, including by providing customer and transaction information.
3. The questionnaire could be expanded to provide more coverage of legal and institutional issues found in FATF 40 Recommendations not relating to law enforcement, as well as incorporating parts of the anti-terrorism recommendations. The questionnaire could inquire about relevant United Nations treaties in effect; what financial institutions and intermediaries are covered; what guidance has been given to these institutions to assist them in complying; the operations of the relevant supervisory and enforcement institutions; and quantitative information on prosecution of money laundering crime. Below is a sample of questions that might be included in the questionnaire; those that address issues outside the coverage of the current AML Methodology Document are marked with an asterisk.
General Legal Framework and Cooperation with International Treaties
1) * How does domestic legislation address the risks of money laundering? What legislation underpins the activities in this area of the supervisory and other financial sector authorities? What financial institutions and intermediaries are covered by AML legislation?
2) * What steps have been taken to ratify the following United Nations conventions and resolutions?
1988 Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (the Vienna Convention);
1999 Convention for the Suppression of the Financing of Terrorism;
2000 Convention against Transnational Organized Crime; and,
Security Council Resolution 1373.
3) * How does domestic legislation address the risks of the financing of terrorism?
Identifying Customers and Records Retention
4) * What standards have the laws, regulations or supervisor set for financial services businesses with regard to knowing the identity of all customers?
5) Have Guidance Notes, Code of Conduct or similar instructions in this area been issued to financial institutions? If so by whom? What status do these have under the law?
6) What guidance has been issued to financial institutions regarding those records that must be kept on customer identification and individual transactions?
7) Is there a requirement on financial institutions that customer information and transaction records be maintained for a minimum period of five years?
8) Does the supervisor require financial institutions to appoint a senior officer with explicit responsibility for ensuring that the bank’s policies and procedures are in accordance with local anti-money laundering requirements?
9) * Under what circumstances can a financial service business take business referred to it without verifying the identity of the ultimate beneficial owner?
Recognizing and Reporting of Suspicious or Unusual Transactions
10) What standards have been issued to financial institutions regarding the recognition of potentially suspicious transactions, * including those related to the financing of terrorism?
11) When must financial institutions report suspicious transactions to the authorities? (for example, a Financial Intelligence Unit?)
12) What mechanisms are in place to ensure that the information is promptly communicated to the relevant supervisor?
13) * How many reports have been filed in last two years?
Cooperating with Relevant Authorities in Investigations, including by Providing Customer and Transaction Information
14) * What institutions are involved in setting anti-money and anti-terrorist financing laundering laws, rules and guidance? What institutions are involved in monitoring compliance, and in collecting and using information related to suspected or actual criminal activities?
15) * How does the supervisor, directly or indirectly, share with the relevant judicial authority and with other domestic and foreign financial sector supervisory authorities information related to suspected or actual criminal activities? Under what conditions?
16) What legal powers does the supervisor have to ensure adherence to the jurisdiction’s anti-money and anti-terrorist financing laundering laws, rules and guidance? How does the supervisor verify that financial services businesses are complying with them?
17) Within the financial sector supervisory agency or agencies, what is the extent of inhouse resources with specialist expertise in financial fraud and anti-money laundering obligations?
Quantitative Information on Prosecution of Money Laundering Crime
18) * How many prosecutions for money laundering crimes have there been in the past two years and how many have been successful?
International efforts to combat terrorism and terrorist financing are summarized in Annex I.
Many of the measures involve joint work with the World Bank. The Bank’s role will be defined by their senior management and Board.
See BUFF/01/54, SM/01/103, and SM/01/46.
See also SM/01/258 “Anti-Money Laundering: Enhanced Contribution by the Fund.”
Annex II discusses the scope of the current Fund-Bank AML Methodology Document and its relationship to the FATF 40 Recommendations and other financial system standards. The principal standards are from the Basel Committee on Banking Supervision (notably principle 15), the International Organization of Securities Commissioners (IOSCO), and the International Association of Insurance Supervisors (IAIS).
International cooperation in this context relates to the interaction between governments to further law enforcement, for example, in freezing and seizing the proceeds from crime, or in gathering evidence or otherwise investigate crimes.
Annex III discusses in more detail the FATF organization, the FATF 40 Recommendations, and the FATF approach, and Annex IV discusses the ROSC process.
Because the crime may not yet have been committed, and for other reasons, the financing of terrorism may in some instances be harder to detect than money laundering.
Indeed, a comparison of the work agendas of the Fund, World Bank, FATF, and other institutions suggests that ample space for institutional cooperation exists.
Annex I includes the full text of the new recommendations.
The Fund’s assessments of OFCs normally include, in addition to a review of the licensing and regulation of a variety of financial sector services, the regulation and supervision of company and trust service providers, and the licensing of companies.
Regional supervisory groupings include for example the Association of Supervisors of Banks of the Americas; the Arab Committee on Banking Supervision; the Eastern and Southern Africa Banking Supervisors Group; and the Offshore Group of Banking Supervisors.
The Egmont Group, established in 1995, serves as an informal association of FIUs, promoting best practice among FIUs and international cooperation in the fight against money laundering.
See SM/00/263 and BUFF/00/190 for a review of FSAP/FSSA process.
See BUFF/01/122, Summing Up by the Chairman Streamlining Structural Conditionality—Review of Initial Experience; IMF-World Bank Collaboration on Program Conditionality; and Conditionality in Fund-Supported Programs—External Consultations Executive Board Meeting 01/79 July 27, 2001.
Annex II contains a further discussion of the relationship between financial supervisory principles, the legal and institutional framework, and law enforcement matters.
The Bank has only limited involvement in Module 2 of theOFC assessments.
The Bank has recently provided technical assistance in Albania, Colombia, Mauritius, Turkey, and Ukraine covering such topics as AML legislation and the establishment of an FIU.
See also SM/01/103, Annex I and SM/01/46, Annex VI.
A regional FIU not only allows the participating countries to share the fixed costs of establishing the institution, but may also be more effective in collecting and analyzing information on related transactions in different jurisdictions.
There could be technical assistance requests for stand alone assessments of supervision of the banking, insurance, and capital markets sectors. Assessments would be based on the expanded AML Methodology Document.
See Article VIII, section 5(c) of the Articles of Agreement.
Under the current policy, the distribution and publication of technical assistance documents require the consent of the authorities and approval by management. Changing this policy, and especially weakening the requirement for the authorities’ consent before distributing a technical document to the Board, raises broader policy issues. The conditions under which specific categories of technical assistance reports could be circulated to the Board or be made public will be considered by the Board as part of the review of technical assistance policy scheduled for March 2002.
Preliminary projections suggest that PDR may need one or two additional regular staff, and area departments may need one or two additional regular staff spread over different departments.
Support activities also include recruitment, computer purchases, software licensing, etc.
The third, concentration risk, relates to identifying customers so as to be able to aggregate beneficial ownership of assets and liabilities for purposes of limiting exposure to any one client.
The 29 members are Argentina, Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Iceland, Ireland, Italy, Japan, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, Turkey, United Kingdom, and the United States.
The jurisdictions that are listed as noncooperative are Dominica, Egypt, Grenada, Guatemala, Hungary, Indonesia, Israel, Lebanon, Marshall Islands, Myanmar, Nigeria, Philippines, Russia, St. Kitts and Nevis, St. Vincent and the Grenadines, Ukraine, Cook Islands, Nauru, and Niue.
These include standards and codes on data, fiscal transparency, monetary and financial policy transparency, banking supervision, securities regulation, insurance supervision, payments systems, corporate governance, accounting, auditing, and insolvency and creditor rights.
In some instances, they also provide evidence to be used in prosecutions.