Recent Regional Trends in Money Laundering and Terrorism Financing and compliance with the internati

1
Recent Regional Trends in MoneyLaundering and
Terrorism Financing and compliancewith the
international AML/CFT standards

• Cecilia Marian
• Manager, Technical Assistance and Training
• APG Secretariat
• August 2008

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Regional Challenges

• Generally characterized by great diversity in
  size, cultures, economies, legal and
  administrative systems, reliance on aid, low
  institutional capacity, large cash economies,
  high use of alternative remittance systems,
  porous borders.

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Regional Challenges

• Serious terrorist activity and on-going threats
• Asia/Pacific region is a source destination for
  terrorist funds
• Corruption
• Proliferation of profit driven crime
• High use of alternative remittance systems
• Extensive use of cash and high value items
• Trans-national crime impacts across the region
• Major drug production centres in the region
• Relatively low institutional capacity

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Serious Terrorist Activity On-going Threats

• The region has experienced terrorist activity
  over many decades the threats continue
• Countries directly affected include for example
• Afghanistan Bangladesh
• Cambodia Canada
• India Indonesia
• Japan Malaysia
• Nepal Pakistan
• Philippines Sri Lanka
• Thailand USA

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Terrorism Financing

• Asia/Pacific region is a source and destination
  for terrorist funds
• Domestic terrorism funded nationally and
  internationally
• International terrorism, funded from within and
  beyond the region
• Sources of funds for terrorist financing within
  and outside the Asia/Pacific region
• High use of informal channels for terrorist
  financing
• Terrorists identifying risks and weak links in
  CFT systems and exploiting them
• Terrorist acts across the region threats
  continue

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Corruption

• Corruption - political institutional impacts
• Systemic corruption undermines regulatory and
  legislative AML/CFT regimes
• Systemic corruption undermines institutional
  development
• Corruption is a key factor in both predicate
  criminal activities and associated money
  laundering
• impedes effective implementation
• prioritisation, sequencing resource allocation
• may involve direct involvement in facilitating
  ML TF
• undermines trust in AML/CFT system
  institutions
• impedes effective domestic cooperation
• impedes international cooperation ability to
  receive offer information, cooperation mutual
  legal assistance

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Transnational Organised Crime

• Diverse range of organised crime groups and
  criminal activities across the region.
• Organised crime groups are laundering proceeds of
  crime through the region.
• Organised crime groups infiltrating legitimate
  systems and entities.
• Direct evidence of links between trans-national
  organised crime and terrorism crimes? more
  research needed.

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Drugs

• Major drug production centres in the region
• Heroin, opium, amphetamine type substances
  (including precursor chemicals) and ecstasy
• Increasing domestic drug consumption within Asia,
  particularly heroin amphetamine type
  stimulants.
• Major drug distribution points and drug transport
  hubs

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Other profit driven crime

• Significant levels of profit driven crime in
  addition to the drug trade
• People smuggling and human trafficking
• Arms trafficking
• Fraud
• Smuggling

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Trade Based Money Laundering

• TBML an important channel for criminal activity
  increasingly important ML TF vulnerability
• Use of TBML more attractive as other common ML
  techniques are closed
• APG collected almost 100 detailed cases on ARS,
  including number of significant cases on TBML as
  the settlement mechanism

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• High use of Cash and Alternative
• Remittance Systems
• Legitimate role for alternative remittance
  systems (ARS) to remit monies to from
  developing countries. High levels of migrant
  workers.
• May also reflect relatively low levels of access
  to trust in regulated financial sector.
• Cash economies and ARS are highly vulnerable to
  exploitation for money laundering and terrorist
  financing.

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• Cash Alternative Remittance
• Systems
• Use of informal channels (ARS, high value goods
  and cash / gold smuggling) is a common ML TF
  typology to remit money - often mingling
  legitimate remittances and black monies.
• ARS and cash couriering linked to other
  trade-based TF ML typologies.

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Low Institutional Capacity

• Large number of developing countries in the
  region.
• High reliance on international aid including
  from NGOs. May affect agenda-setting
  priorities.
• Diversity in the levels of institutional
  AML/CFT development across the region affects
  capacity and trust.
• Weak links may be exploited.

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Risks of Doing Nothing

• Increased criminal and terrorist
• activity population at risk.
• Stability of the banking system
• reputation damage.
• Negative economic effects.
• Sanctions / threat of actions by the
  international community.
• Weak links attract money launderers and
  terrorists.
• National security issues.

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The Global Response..

• The international community has coordinated its
  efforts in combating money laundering and
  terrorist financing resulting in international
  instruments, such as
• The 1988 UN Convention Against Illicit Traffic in
  Narcotic Drugs and Psychotropic Substances (the
  Vienna Convention)
• The 1999 UN Convention of the Suppression of the
  Financing of Terrorism
• The 2000 Convention Against Transnational
  Organized Crime (the Palermo Convention)
• The 2003 UN Convention Against Combating
  Corruption
• The 40 9 Recommendations of the Financial
  Action Task Force
• Establishment of the Financial Action Task Force
  (FATF) by the G7

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Asia Pacific Regional Responses- APG

• The APG is the FATF-style regional body (FSRB)
  for the Asia/Pacific region.
• The APG does not set the standards against money
  laundering and terrorist financing.
• Those standards are global and are set by the
  FATF.

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APGS Role

• APGs principal regional roles
• Implement the global AML/CFT standards
• Assess AML/CFT compliance
• Coordinate AML/CFT technical assistance
  training
• study methods and trends of money laundering
  (typologies

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The FATF Recommendations

• Financial Action Task Force
• Established in 1990 by G-7 Summit in 1989 to
  examine measures to combat money laundering
• 33 members
• 40 recommendations
• International standard for AML - 40 anti-money
  laundering recommendations developed in the 1990
  and in 2003/2004 9 recommendations to address
  terrorist financing were added
• Revised in 1996
• Second round of comprehensive revision finalized
  in June 2003

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The FATF Recommendations

• Comprehensive and consistent framework for
  combating ML and FT
• Minimum standards for measures to be
  implemented by States consistent with
  constitutional and domestic legal frameworks
• Special focus - customer identification and due
  diligence requirements, suspicious transactions
  reports, use of trusts and corporate vehicles and
  non-financial business and professions
• Risk based approach

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The FATF Recommendations

• Legal Systems
• Criminalize laundering of proceeds of serious
  crimes freezing / confiscation
• Financial / non financial institutions measures
• Customer identification record-keeping
  transaction reporting
• regulation supervision
• Institutional Measures
• Financial intelligence units (FIU)
• Properly resourced government agencies
• International co-operation
• Mutual legal assistance extradition law
  enforcement co-operation

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FIUs-Relevant FATF Recommendations

• R.26 Countries should establish a FIU that
  serves as a national centre for the receiving
  (and, as permitted, requesting), analysis and
  dissemination of STR and other information
  regarding potential money laundering or terrorist
  financing

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FIUs-Relevant FATF Recommendations

• R. 25 Providing feedback on STR Reporting
• R. 30 Adequate resourcing -financial, human and
  technical resources
• R.31 Effective Domestic Cooperation Mechanisms
• R.32 Compiling of Statistics-to Facilitate the
  assessment of effectiveness of measures
• R.40 - International Cooperation- ability to
  provide

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The Assessment of Financial Intelligence Units

• Key Powers receipt, analysis and dissemination
• Organization and structure-autonomy and
  independence
• Suspicious transaction reports
• Access to Information
• Confidentiality of information
• Feed-back, guidance and strategic analysis
• Internal coordination/domestic interagency
  coordination
• International cooperation
• Egmont membership
• Resources, capacity and expertise
• Compiling statistics

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The FATF Recommendations

• Rec 1 -criminalise money laundering on the basis
  of Vienna and Palermo Conventions
• Rec 2 - Men reas minimum knowing include
  concept that knowledge may be inferred from
  objective factual circumstances. Sanctions extend
  to legal persons
• Rec. 3 -Confiscation of proceeds of crime
  measures to identify, trace and evaluate property
  to be confiscated provisional measures i.e.
  measures to freeze or seize property to prevent
  dealing, transfer or disposal of property and
  appropriate investigative measures

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FATF 40 Recommendations

• Rec 4 - FIs Secrecy Laws to be overridden
• Rec 5 - Comprehensive CDD measures based on risk
  analysis
• Prohibition of anonymous accounts
• Rec 6 - Politically Exposed Persons (PEPs)
• Rec 7 - cross-border correspondent banking
• Rec 8 - ML threats arising from new and
  developing technologies (non-face to face
  business relationship and transactions)

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FATF 40 Recommendations

• Rec 9 - performance of CDD process by third
  parties/intermediaries and business introducers
• Rec 10 - Keeping transaction and CDD records
• Rec 11 pay attention to complex, unusual large
  transactions and usual patterns of transactions
• Rec 13 - reporting of suspicious transactions
  (STRs)
• Rec 16 - the application to designated
  non-financial businesses and professions
• Rec 17 - the existence of effective,
  proportionate and dissuasive sanctions (criminal,
  civil or administrative)

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The FATF Recommendations

• Rec 18 prohibition of shell banks
• Rec 21 - businesses relationships and
  transactions with persons from countries which do
  not or insufficiently apply the FATF
  Recommendations
• Rec 22 - application of principles to branches
  and majority owned subsidiaries located abroad
• Rec 23/24 - ensuring that designated institutions
  are subject to adequate regulations and
  supervision
• Rec 25 - guidelines and feedback to be issued by
  competent authorities

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The FATF Recommendations

• Rec. 26 - Establishment of FIUs
• Rec. 27 - designated law enforcement agencies
  and use of special investigative techniques
  encouraged
• Rec. 28 - ability to obtain documents and info
  for use in investigations and prosecutions
  including records held by financial institutions
• Recs. 29/30/31/32 - Requirements for competent
  authorities
• Recs. 33/34 - Transparency of Legal
  persons/arrangements
• Recs. 35- 40 - International Cooperation

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FATF 9 Special Recommendations

SR I - Ratify/implement UN Instruments SR II -
Criminalize terrorist financing and money
laundering SR III -Freeze/confiscate terrorist
assets SR IV- Report suspicious transactions
related to terrorism SR V- International
co-operation SR VI - Alternative remittance SR
VII - Wire transfers SR VIII- Non-profit
organizations SRIX Cross border declaration of
cash and negotiable bearer instruments Cash
couriers
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Other Functions of FIUs in AML/CFT Framework

• Very often, Agency leading AML/CFT efforts
• Supervisory agency for DNFBPs
• Central, Key Agency to Interagency domestic
  cooperation
• Interface between preventative sector, regulatory
  agencies and the law enforcement agencies

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What Works

• National Coordination Committee
• Financial Sector/Private Sector Consultation
• Law Enforcement and Regulatory Consultation
• International Regional Cooperation and
  Collaboration

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What Works

• Establish an understanding of the global AML/CFT
  standards and assessment processes
• Develop and implement national strategies
• Develop an implementation plan
• Engage in political awareness- raising
  Gathering Political support
• Request TA T where needed

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Summary Conclusions

• The pressures to comply with the global AML/CFT
  standards are very real and mounting.
• There are some significant challenges in the
  region.
• Crime and terrorism are cross-border threats
  requiring national, regional and global
  responses.
• The risks of not responding are clear.
• FIUs are central to effective AML/CFT systems
  that address regional challenges international
  obligations.
• There is much to be done and some real
  opportunities for cooperation and collaboration.

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