PRESENTATION%20TO%20PCOF

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• PRESENTATION TO PCOF
• BACKGROUND TO
• SOUTH AFRICAs PRESIDENCY
• OF THE
• FINANCIAL ACTION TASK FORCE (FATF) XVII
• 31 August 2005

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What is the Financial Action Task Force (FATF)?

• FATF is the International Standards-setting body
  to combat
• Money laundering, and the
• Financing of terrorism
• Creates a global network of 150 countries
• Aim is to
• Reduce the vulnerability of financial systems to
  subversion by proceeds of crime
• Assist in reducing money laundering and
  elimination of financing of terrorism
• Create tools for law enforcement to investigate
  prosecute crimes involving proceeds

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Benefits of this?

• There are many benefits from implementing an AML/
  CFT system -
• Prevents criminals from turning crime into profit
• Prevents financial power being placed into the
  hands of criminals
• Ensures scarce resources are not diverted from a
  countrys fiscus
• Enables governments to fund socio-economic
  development
• Maintains legitimacy for the integrity and
  stability of a countrys financial system
• Consolidates and protects democracy

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What are the objectives of the Financial Action
Task Force (FATF)?

• FATF sets monitors international AML/CFT
  standards -
• 40 Recommendations on money laundering
• 9 Special Recommendations combat financing of
  terrorism
• Conducts Mutual Evaluations of members
• Promotes worldwide awareness
• Encourages compliance by non-FATF members
• Analyses and monitors methods and trends and
• Promotes international co-operation and
  coordination

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But what is the Financial Action Task Force
(FATF) (2)

• Originally established in 1989 to prevent drug
  money from entering financial system
• Extended in 2001 to cover financing of terrorism
• Revised Recommendations in 2003 seek to prevent
  proceeds from wide range of crime entering
  financial systems and identifies non financial
  business (DNFBPs)

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FATF associated membership

• The FATF
• Today consists of 31 country members and 2
  organisations
• Membership by invitation only
• Countries need to be strategically important
• RSA only country for African continent
• Importance of the FATFs role was recently
  recognised by the UN Sec Council under Chapter
  VII of the Charter
• New UNSC Res 1617 vs Al-qaida Taliban strongly
  urges all Member States to implement the
  comprehensive, international standards embodied
  in the FATF 409

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FATF membership
EAG
Moneyval
APG
MENAFATF
CFATF
GIABA
APG
GAFISUD
ESAAMLG
Building a global network against money
laundering terror financing
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FSRBs and international institutions

• FATF-style regional bodies (FSRBs) important
  extension of FATF work
• Endorse and seek to implement FATF standards and
  modus operandi
• Observers at FATF meetings
• Position will be taken in October 2005
• likely associate membership for FSRBs which
  comply with standards
• International institutions and organisations
• IMF World Bank cooperate on Mutual Evaluations
• United Nations CTC and UNODC
• Basel IOSCO IAIS alignment of standards
• Interpol Egmont Group law enforcement

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What are the priority areas for an AML/ CFT
system?

• The 409 Recommendations are grouped into four
  broad priority categories
• Criminal justice
• Preventive
• Administrative
• International
• An effective AML/ CFT system requires the
  integration of these areas

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Ongoing FATF Work Mutual Evaluations

• 1. Mutual Evaluations
• All FATF members and FSRB members undergo regular
  Mutual Evaluation assessments
• Purpose is to monitor compliance
• Provide analysis of deficiencies for remedial
  action
• Reports impact on credit ratings and
  credit-worthiness
• New assessment methodology adopted in 2004
• Very detailed and onerous
• New round of evaluations taking place
• Assessments teams consist of experts in finance,
  legal, law enforcement with two members of the
  secretariat
• 2-3 results are placed before each plenary for
  discussion
•  

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Ongoing FATF work

• Mutual Evaluations (2)
• Results shared with all FATF members and FSRB
  members
• Also IMF and World Bank
• Published on FATF website
• Published as ROSC on Bank website
•  

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Ongoing Working Group on Typologies

• 2. Typologies work
• Typologies work undertaken to inform policy
  makers of trends and methods
• Working Group meets at Plenary meetings
• Annual Workshop of about 300 people
• Typologies now under discussion include
• Alternative remittance systems
• Insurance sector vulnerabilities
• Human being trafficking and illegal immigration
• Methods and trends in money laundering and
  terrorist financing, including the use of drug
  trafficking related to terrorist financing
• Wire transfers and terrorist financing techniques

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Ongoing Working Group on Evaluations and
Implementation

• 3. Evaluations and Implementation of standards
• Training for assessors of Mutual Evaluations
• Conduct of Mutual Evaluations
• Methodology issues
• Sharing, Reciprocity and Publication of reports
• Improved dialogue with private sector
• Risk-based approach
• Politically exposed persons
• Beneficial ownership
• Money transfer systems
• Designated Non-Financial Businesses and
  Professionals (lawyer, accountants, estate
  agents, motor-car dealers, etc)

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Ongoing Working Group on Financing of Terrorism

• 4. Ongoing assessment of 9 Special
  Recommendations their implementation
• Guidance and best practice papers on SRs
• SR VIII on Non-Governmental Organisations
• SR VII Wire Transfers
• Thresholds
• E-money

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Ongoing Non Co-operating Countries and
Territories (NCCTs)

• 5. Original list of Non Cooperating Countries
  and Territories (NCCTs) developed in 2001
• 23 countries originally listed
• Listing means enhanced scrutiny of all
  transactions and financial relationships
• Myanmar, Nauru and Nigeria remain listed
• Countries under monitoring Ukraine, Bahamas,
  Guatamala

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Presidency

• Presidency
• Rotates between countries on an annual basis
• Previously
• France, Sweden, Germany
• Why RSA?
• Developing country
• Displayed seriousness in its AML/ CFT
  implementation
• Serious player in global financial system
• Cabinet appointed Prof Kader Asmal to this
  position from July 2005.

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SA Presidency priorities for FATF XVII

• The SA Presidency seeks to highlight several
  priorities for FATF XVII
• Continue the work as set out previously by FATF
• Ongoing Mutual Evaluations programme
• SA objectives for FATF XVII
• Create space for developing country LDC issues
• Cash-based economies
• Poorly developed financial sectors
• Sometimes fragile governmental and institutional
  arrangements

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SA Presidency priorities for FATF XVII (2)

• Proposals for FATFXVII
• Clarify membership status of FATF-Style Regional
  Bodies
• Develop and consolidate relationships with FSRBs
  (ESAAMLG, GIABA, EAG)
• Facilitate provision of technical assistance
• Provide training and sharing of information
• Ongoing facilitation of membership of China and
  India
• Integrate corruption issues into FATF standards
• Emphasis on good governance and benefits that
  flow from this
• Social/ economic costs as result of diversion of
  resources
• Cross-reference to UN Conventions, etc in 409

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SA Presidency priorities for FATF XVII (2)

• Typologies/ trends
• Consolidation of previous work
• Human trafficking
• wire transfers
• cash couriers
• Introduction of
• Trade-based money laundering
• customer due diligence practice and
• trust company service providers.
• Plenary meeting in Cape Town in February 2006
• All of this is no small task!

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Summary

• The work of the FATF has become increasingly
  well-known and important around world
• Standards (409) have become integrated into the
  overall monitoring supervision of a countrys
  financial systems
• Increasing global co-operation and sharing of
  information
• RSA can play leading role
• Liaising and integrating FSRBs into system
• Raising issues of Developing and Less Developed
  Countries
• Another example of RSAs integration into the
  global financial and trading system.

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THANK YOU31 AUGUST 2005
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(No Transcript)
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Annexures
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FATF Membership

• Membership of 31 countries
• Argentina Australia Austria
• Belgium Brazil Canada
• Denmark Finland France
• Germany Greece Hong Kong, China
• Iceland Ireland Italy
• Japan Luxembourg Mexico
• Netherlands New Zealand Norway
• Portugal Russian Federation Singapore
• South Africa Switzerland Spain
• Sweden Turkey United Kingdom
• United States.
• 2 regional organisations European Commission
  Gulf Co-operation Council.
• Newest members Russia South Africa (both June
  2003)
• Peoples Republic of China and India remain to
  become members

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FATF- style regional bodies
Moneyval- European Union countries
EAG- East Asian Group
APG
MENAFATF- Middle East North Africa FATF
CFATF- Caribbean FATF
GIABA- Groupe Inter-gov dAction contre le
Blanchiment en Afrique
APG- Asia Pacific Group
GAFISUD- South American FATF
ESAAMLG Eastern Southern Africa AML Group
Building a global network against money
laundering terror financing
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Typologies

• 1. Avoidance of customer due diligence
  procedures in deposit-taking institutions
• Study on how laundered money today enters the
  financial system
• Deposit-taking are frontline defence against
  placement of proceeds of crime
• Seek to identify areas of vulnerability with due
  diligence procedures
• Identify new methods and trends in placement
  techniques
• eg. ID theft and fraud fronting trusts shells
  unaffiliated ATMs, etc

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Typologies

• 2. Trust and Company service providers
• Tightening of financial systems has meant
  criminals seek alternative means to disguise and
  convert proceeds
• Shell corporations used with complex ownership
  structures for simple purpose or as multipurpose
  entities.
• Identify areas of vulnerability and evidence of
  malpractice by shell companies
• Use of secrecy legislation
• Supervisory and monitoring aspects
• Beneficial ownership and control of legal persons
• Areas of greatest misuse etc

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Typologies

• 3. Trade based money laundering
• Financial sector entities increasingly subject to
  AML/ CFT measures
• Thus evidenced migration into non-financial
  sectors
• Study to assess use of trade based systems for
  ML/ FT address shortcomings
• Use of trade customs data better
• Complement wire remittances work being done
• Facilitate broad policy development customs
  fraud increase revenues quality of trade stats
• Involve a number of countries (FATF non-FATF)

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RSA Mutual Evaluation 2003

• SA first Mutual Evaluation conducted for
  membership in 2003
• Deficiencies identified by FATF included
• Absence of measures to combat the financing of
  terrorism
• Beneficial ownership of trusts
• Supervisory issues
• Implementation and prosecutions
• Since then POCDATARA has incorporated CFT
  measures
• Draft legislation in preparation on AML/CFT role
  for supervisory bodies, provisions re
  beneficial ownership
• Extensive implementation taking place
  consolidation
•  

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Priority Areas for AML/ CFT system

• Criminal Justice
• R1 and SRI Criminalise money laundering and
  financing of terrorism
• R3 and SRIII Freezing and forfeiture of proceeds
  of crime and terrorist related property

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Priority Areas for AML/ CFT system

• Preventive measures
• Customer due diligence
• R 5 Client identification
• R6 Systems in financial institutions to deal
  with PEPs
• R10 Keeping records of transactions
• Reporting
• R13 and SRIV Reporting of suspicious
  transactions on money laundering and terrorist
  financing
• R11 Attention to complex transactions
• R4 Relax financial institution secrecy
• R14 Protect persons making reports

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Priority Areas for AML/ CFT system

• Administrative
• R27 Mandate for investigating authorities
• R28 Powers of investigating authorities to
  obtain documents and information
• R27 Mandate for investigating authorities
• R28 Powers of investigating authorities to
  obtain documents and information
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• R23 Supervision of financial institutions
• R26 Establish a Financial Intelligence Unit
  (FIU)
•  

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Priority Areas for AML/ CFT system

• International
• R35 and SRI Ratify UN Conventions and implement
  UNSC Resolutions
• R36 to 39 Offer mutual legal assistance and
  extradition.
• R40 Other forms of co-operation

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