Judge Hesham Ragab

1
Egypt Experience in adopting AML/CTF Measures
and Challenges
2
Structure Of Presentation

• Legal Frame work of Egyptian AML system
• Measures Taken by Supervisors and Financial
  institutions others , to implement the enacted
  frame work.
• Challenges of adopting AML/CTF
• Legal
• Financial institutions
• FIU
• LEA
• CFT Challenges with the AML context In Egypt

3
Reasons Behind listing Egypt as a NCCT

• The absence of a separate comprehensive law.
• Absence of detailed rules to identify financial
  institutions subject to AML and their duties.
• Absence of independent FIU
• Absence of proper customers identification Rules.
• Bank secrecy law inflexibility

4
Legal and Regulatory frame work

• legislative Frame work
• AML law n 80 May 2002(Challenges)
• Presidential Decree No. 164 issued June 2002
  regarding the FIU
• Implementing Regulations June 2003
• Regulations issued by Supervisory authorities
• Regulations issued by Financial institutions

5
Main features of the law

• Defining new terms (ML, financial institutions,
  assets.
• Listing Predicate offences
• Criminalizing ML laundering offences
• Establishing FIU (Council of Trustees
  (challenges)
• STRs became an exception to secrecy law

6
Main features of the law (2)

• 1- Setting the financial institution obligations
• KYC
• Reporting STRs
• Keeping records
• 2- Criminal punishment in case of violation of
  those rules.

7
Main features of the law (3)

• Enhancing international criminal cooperation.
• Encouraging financial institution to report. (no
  criminal liability or civil..)
• Encouraging criminals to report the crime
  (article 17) in accordance to international
  conventions (UN convention against transnational
  organized crimes)

8
The Executive regulations

• Implementing regulations comprise 7 chapters as
  follows
• Chapter 1 Definitions
• Chapter 2 FIU
• Chapter 3 board of trustees
• Chapter 4 Supervisory Entities
• Chapter 5 Financial institutions
• Chapter 6 Training
• Chapter 7 International Cooperation.

9
Major Highlights of the Executive regulation

• FIU
• (Receiving, analyzing STRs)
• FIU is empowered to Arrange training
• programs for all relevant entities.
• FIU is under obligation to arrange awareness
  programs.

10
Executive regulations

• Supervising Authorities (Key
  player)
• Article 21 puts supervising authorities under
  obligation to co-ordinate with FIU
• Periodic inspection
• Regulatory authorities are required to assign a
  Contact officer to be responsible of all relevant
  ML issues
• Standards of KYC rules. (homework)
• Standards of suspicion.

11
Phase 2 Implementation of legal frame work

• Action taken by Financial Sector
• Appointing a compliance officer
• Setting their own regulations and manuals for
  combating ML (every single bank should do it on
  his own???
• KYC, KYB, Record keeping , internal systems to
  detect any unusual transactions.
• Reporting system starts (STR Forms)
• Training plan (starting training) (who provide
  training)( who needs training) (level of
  training)
• Updating Customer ID plan (Forms)

12
Phase 2 Implementation of legal frame work

• Action taken by supervisory authorities
• Comprehensive periodical examination Plan
• For all banks once a year which includes all
  areas
• Special examination programs (Standards)
• Questionnaire and a special evaluation sheet
• Expanding numbers of AML examiners
  
• Special Training for examiners (Why!!!)
• Follow up with examination (corrective measures)

13
E.G of CBE examination check list

• AML manuals was circulated to the examined
  branches
• Updates took place with regards to customers
• Classifying customers on a risk basis approach
• Training of the staff in AML issues
• Existing systems used for producing periodical
  reports (daily, weekly etc) on unusual
  transactions exceeding threshold
• Suspicious transaction reports filed by branches
  to MLRO at head quarters.
• Follow up and measures taken by the Headquarter
  MLRO to ensure Compliancegtgtgt
• Existing systems used for keeping records and
  registers at branches.
• Examining samples of different transactions .

14
FIU Role \Implementation phase

• Models and Forms issued by the unit to implement
  the law and help financial institutions. (STRs
  models, annual MLRO report forms)

15
Number of STRs in 2nd year of implementation

• End February 2004 was 325 STR
• 850 STR at end of January 2005
• Financial institution 748
• Supervisory Authorities 38
• Individuals 35
• LAE 16
• Counter FIUs 13
• Conviction 2
• Inquiries in public prosecution (10)

16
Phase 2 LEA

• Second phase/ Implementation plan
• Law enforcement agencies e.g ministry of interior
  (special task force AML units)
• Appointing a contact person with FIU
• Training for competent officers
• Reporting ML Crimes during its normal course of
  work.
• Investigating STRs sent by the unit (Setting
  mechanisms)

17
Challenges facing Financial institutions (1)

• KYC rules
• Excessive requirements of KYC rules
• Different bank approaches (Role of FIU and
  regulators)
• Playing detectives role
• Customers resistance
• Regulators need to raise awareness
• Coaching staff how to handle issues
• Updating current customers information plans
• Classification of customers and risk based
  approach. (low, high, medium)
• e.g. with respect to updating customer ID

18
Challenges facing Financial institutions (2)

• Difference between Source of funds and source of
  every single transaction.
• Situation in dealing with real time suspected
  transactions. ( international wiring) (ist stages
  of applying the law.
• Staff need to learn that their main
  responsibility is to report and not to ??????
• Avoid tipping off

19
Challenges facing Financial institutions (3)

• Independence of ML officers (seniority) (annual
  report) (ML officers club meets FIU)
• Feedback of STRs problems!!!
• Requesting provisional measures
• Referring investigation to judicial authorities
• Final verdicts

20
Challenges Facing FIU and LEA

• Trained Staff with financial background
• Dealing with banks questions (regarding STRs)
• Coordination between LEA and banks and FIU
  (understanding The banks culture)
• Building trust (mixed training courses)
• How LEA should deal with banks STRs (Traditional
  approach)

21
Legal challenges

• The question of proof (U.S history)
• Nature of ML Crimes (complex forms)
• Prosecution office and how to handle ML cases in
  a efficient way
• Prosecution office issued a guidelines of ML
  cases inquiries and prosecution.
• Who is the ultimate victim in complex ML
  cases?????

22
International Cooperation Challenges

• Problems of normal international channels
  (request of information through official
  channels)
• Egmont group function and perceived role in
  future. (operational level)
• 94 FIU December 2004
• Terrorist financing became a requirement to be a
  member.
• MOUs

23
Challenges dealing with Terrorist financing

• Process to build effective CTF systems starts by
  asking your self these questions???
• What is the link between terrorist financing and
  ML???
• Do Terrorist organizations launder its money and
  if so WHY?
• What are similarities between ML and Terrorist
  financing and differences?
• Why should the AML FIUs be involved in this
  issue?
• Was there good reasons to deal with both issues
  under the ambit of AML FIUs?

24
FATFFinancial action Task Force

• FATF Paris 1989
• 1990 40 recommendations, reviewed in 1996.
• 2001 FATF mission was extended to TF and issued
  the 8 Recommendations.
• 2004 the FATF mission was extended to 2012

25
Sources of Terrorist funds

• Countries
• Charities whether or not they know or dont.
• Self finance
• Investing in legitimate business
• Investing in Crimes (Narcoterrorist)

26
Major international Instruments in Combating
Terrorist financing

• FATF 40 recommendations 1990.
• International Convention for the Suppression of
  the Financing of Terrorism.(1999) France
  initiative..
• UN Resolution 1373 (After Sept 11) (chapter 7)
• 81 Special recommendation
• What is the relation between them???
• Duplication, supplementing each other.

27
Relation between The UN Convention and ML

• Financial institutions are under obligation to
  report suspicious transaction regardless if it is
  resulted from criminal or legitimate source
• KYC Rules, Keeping records
• Taking effective measures to detect or monitor
  Transportation of cash.

28
Security Council Resolution

• The Resolution Calls upon all states to become
  parties to relevant conventions including the SFT
  convention.

29
FATF 8 Special recommendations

• Preamble says
• The FATF has agreed that these
  recommendations when combined with the FATF
  Forty recommendations on ML set out the basic
  framework to detect, prevent suppress the
  financing of terrorism.

30
Terrorist financing Case StudyThe Link

• A foreigner (Z) opened an account in country (A)
• He applied for a loan worth millions of
  Dollars???
• The bank Filed STR report?
• Investigation led to .

31
Terrorist financing Case Study

• The money will be transferred to other accounts
  belongs to companies owned by Mr (Z)
• One of this companies will purchase a Chain of
  Hotels
• (X) a Citizen of another country will later
  purchase that company
• X is a member of terrorist group and Z works on
  his behalf.

32
Remarks on this case study

• Normal ML suspicious indicators
• Take an legitimate business as a front
• A layers of transactions and movement of money
  through different accounts and names
• The goal is ..

33
What are the links

• Financial institutions and Cross border cash
  movements.
• The goal and the medium and channels is the same
  thus the schemes and techniques are very similar,
  indicators will be also
• Using FIU existing capacities would be justified
  or not.
• Why we have conducted this analysis (Conflict
  with LEA)

34
Egyptian AML System Highlights

• Structure of the board of trustees (enforcing AML
  Agenda)
• Link with Egyptian Banking institute and national
  center for judicial studies.
• Certified training is going to be mandatory
  requirement for
• Creation Of National Coordinating Committee

35
National Coordinating committeeAML/CFT

• Prime Minister Decree No 63 for 2005
• Established within ML Unit and presided by the
  Chairman of board of trustees.
• Membership list
• Ministry of foreign affairs- Ministry of social
  affairs
• Ministry of Interior Public Prosecution
• National Security Agency- Administrative Control
  Ag
• CBE CMA- ML Unit- Egyptian Banking institute.

36
National Coordinating committeeAML/CFT

• The Committee shall undertake coordination of the
  national efforts in the field of combating money
  laundering and financing terrorism
• And shall contribute to what is required for the
  implementation of relevant laws, regulations.

37
Conclusion

• Policy makers and political commitment
• Identifying Key players
• Building effective AML requires??
• Sanctions and role of regulators
• Alternative mechanism of coordination
• Compliance club (opening forms)
• Contact officers
• Coordinating High level Commission.