Role of Regulators in Combating Money Laundering and Terrorist Financing

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Role of Regulators in Combating Money Laundering
and Terrorist Financing

• AML Conference for Bank Directors
• 6-7 December 2006
• Transcorp Hilton, Abuja, NIGERIA
• RUNE GRUNDEKJØN

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1. The last 20 years
2. Criminalization of ML and TF
3. Supervision and Regulation
4. Guidelines and Feedback
5. Sanctions
6. Cooperation Among Competent Authorities
7. The Regulators and the Private Sector

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The last 20 years

• Banks are the core protection network
• UN
• FATF
• The Council of Europe
• The Basel Committee on Banking Supervision
• IMF and World Bank
• It started with the banks--

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Criminalization of ML and TF

• FATF
• Recommendation 1
• Countries should criminalise money laundering on
  the basis of United Nations Convention against
  Illicit Traffic in Narcotic Drugs and
  Psychotropic Substances, 1988 (the Vienna
  Convention) and United Nations Convention against
  Transnational Organized Crime, 2000 (the Palermo
  Convention).--------etc

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Criminalization of ML and TF

• FATF
• Special recommendation 2
• II. Criminalising the financing of terrorism and
  associated money laundering
• Each country should criminalise the financing of
  terrorism, terrorist acts and terrorist
  organisations. Countries should ensure that such
  offences are designated as money laundering
  predicate offences.
• Implementation
• Every country must find it way based

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Supervision and Regulation

• FATF
• Recommendation 23
• Countries should ensure that financial
  institutions are subject to adequate regulation
  and supervision and are effectively implementing
  the FATF Recommendations. Competent authorities
  should take the necessary legal or regulatory
  measures to prevent criminals or their associates
  from holding or being the beneficial owner of a
  significant or controlling interest or holding a
  management function in a financial institution.

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Supervision and Regulation

• Recommendation 23
• not be read as to require the introduction of a
  system of regular review of licensing of
  controlling interests
• but as to stress the desirability of suitability
  review for controlling shareholders in financial
  institutions (banks and non-banks in particular)
  from a FATF point of view

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Supervision and Regulation

• Using an intermediary for criminal purposes is
  not just limited to money laundering activities
• It strikes to the very heart of banking
  activities
• Important to prevent the dishonest intermediares

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Supervision and Regulation

• Recommendation 23
• Where shareholder suitability or fit and proper
  tests exist, the attention of supervisors should
  be drawn to their relevance for anti-money
  laundering purposes.
• Important
• Transparency of the ownership structure, the
  reputation of the directors
• Internal controls

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Supervision and Regulation

• The FATF mutual evaluations
• Ratings linked to regulation and supervision
• What is the problem
• Weak points from different countries
• Examples from reports
• What can be done to improve the work

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Supervision and Regulation

• Inspections and visits
• Offsite visit
• Onsite visit
• Important tool
• Many countries have ML/TF on the agenta during
  all the onsite visits
• In addition inspections focusing solely on ML/TF

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Supervision and Regulation

• Onsite visits
• How to choose the institutions subject to
  inspection
• Prior to the visit
• The team from the Supervisory Authority
• The spot checks
• How much in detail?
• The communication with the bank
• written and oral
• The right level, Board, AML officer etc

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Supervision and Regulation

• RESOURCES
• Recommendation 30
• Countries should provide their competent
  authorities involved in combating money
  laundering and terrorist financing with adequate
  financial, human and technical resources. 
  Countries should have in place processes to
  ensure that the staff of those authorities are of
  high integrity.

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Guidelines and Feedback

• Recommendation 25
• The competent authorities should establish
  guidelines, and provide feedback which will
  assist financial institutions and designated
  non-financial businesses and professions in
  applying national measures to combat money
  laundering and terrorist financing, and in
  particular, in detecting and reporting suspicious
  transactions. 

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Guidelines and Feedback

• Interpretative Note to Recommendation 25
• When considering the feedback that should be
  provided, countries should have regard to the
  FATF Best Practice Guidelines on Providing
  Feedback to Reporting Financial Institutions and
  Other Persons.

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Guidelines and Feedback

• From the mutual evaluation reports
• Private sector asking for more specific and
  tailored guidelines
• Some coutries have no guidelines at all
• Lack of guidelines in main areas
• Lack of feedback in time
• The relationship between guidelines from the
  Regulator and guidelines from the FIU

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Guidelines and Feedback

• The importance of guidelines and feedback
• Information
• Learning and training elements
• Motivation for the private sector
• Avoid wrong practice
• We all need feedback
• The supervisor should not go into every single
  detail the risk based approach
• The institutions are responsible for their own
  activities not handle it over to the supervisor

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Guidelines and Feedback

• From FATFs report on Australia

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Guidelines and Feedback

• From FATFs report on Denmark (Rec 25 Non
  Complient)

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Guidelines and Feedback

• From the FATF report on Iceland, Rec 25 (Non
  complient)

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Sanctions

• Recommendation 17
• Countries should ensure that effective,
  proportionate and dissuasive sanctions, whether
  criminal, civil or administrative, are available
  to deal with natural or legal persons covered by
  these Recommendations that fail to comply with
  anti-money laundering or terrorist financing
  requirements.

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Sanctions

• Recommendation 29
• Supervisors should have adequate powers to
  monitor and ensure compliance by financial
  institutions with requirements to combat money
  laundering and terrorist financing, including the
  authority to conduct inspections.  They should be
  authorised to compel production of any
  information from financial institutions that is
  relevant to monitoring such compliance, and to
  impose adequate administrative sanctions for
  failure to comply with such requirements.

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Sanctions

• It is important to have in mind the purpose with
  the sanction regime make the system work
• Can be different from country to country
• Based on international standards and national
  traditions

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Sanctions

• Question for the conference How is it possible
  to both cooperate with the private sector and use
  sanctions at the same time???

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Sanctions

• Examle of sanctions from the Supervisory
  Authority according
• Written warnings
• Comments from the FATF reports

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Cooperation among competent authorities

• Recommendation 31
• Countries should ensure that policy makers, the
  FIU, law enforcement and supervisors have
  effective mechanisms in place which enable them
  to co-operate, and where appropriate co-ordinate
  domestically with each other concerning the
  development and implementation of policies and
  activities to combat money laundering and
  terrorist financing.  

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Cooperation among competent authorities -
internationally

• INTERNATIONAL CO-OPERATION
• Recommendation 35
• Countries should take immediate steps to become
  party to and implement fully the Vienna
  Convention, the Palermo Convention, and the 1999
  United Nations International Convention for the
  Suppression of the Financing of Terrorism etc

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Cooperation among competent authorities

• The cooperation between public and privat sector
  is very important
• The same team but different roles

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• rune.grundekjon_at_kredittilsynet.no
• www.kredittilsynet.no
• FATF
• http//www1.oecd.org/fatf/
• Council of Europe
• http//www.coe.int/DefaultEN.asp
• UN
• http//www.un.org/