Anti-Money Laundering

1
Anti-Money Laundering Countering the Financing
of Terrorism

• Cari Votava, BFR
• Richard Zechter, BFR
• Juan Ortiz, LCSFF
• Finance Week
• June 21, 2002

2
WB IMF BOARDS AGREE

• Money laundering is a global concern
• It affects financial systems has development
  costs
• To intensify global efforts in anti-money
  laundering (AML) and in countering the financing
  of terrorism (CFT) within respective development
  mandates

3
MONEY LAUNDERING

• any transaction involving funds derived from
  criminal activity
• TERRORIST FINANCING
• Fundraising or supporting organizations engaged
  in terrorism

4
GOALS

• Money Launderers
• Inject transfer dirty money so funds from
  criminal activities appear to have come from
  legal sources
• Ensure underlying criminal activity remains
  invisible
• Terrorists
• Terrorism
• Fund raising

5
COMMON PREDICATE OFFENCES

• Terrorism/terrorist financing
• Drug trafficking
• Bribery
• Smuggling (arms, people, goods)
• Theft
• Embezzlement
• Racketeering
• Tax evasion
• Gambling
• Prostitution

6
HOW MONEY IS LAUNDERED

• Placement
• Structuring
• Smurfing
• Layering
• Integration

7
CONSEQUENCES OF MONEY LAUNDERING

• Makes crime a profitable enterprise
• Damages market integrity
• Deters (honest) foreign investment
• Perpetuates corruption - undermines good
  governance
• Contamination/contagion B.C.C.I.

8
CONSEQUENCES OF MONEY LAUNDERING (continued)

• Uneven playing field for honest businesses
• Laundered funds often untaxed income
• Risks for Financial Institutions
• Regulatory Risk
• Credit Operational Risks
• Market risk

9
GOALS OF AML/CFTLAWS POLICIES

• Coordinate AML/CFT efforts domestically
  internationally
• Know-Your-Customer (KYC)
• Report Suspicious Transactions
• Financial Intelligence Unit (FIU)
• A central, national agency responsible for
  receiving, requesting, analyzing and
  disseminating to the competent authorities,
  disclosures of financial information in order to
  counter money laundering terrorist financing.

10
Basic FIU Concept(one example)
Foreign FIU
Financial Institution
3
Financial Institution
1
FIU
Financial Institution
Prosecutorial Authorities
4
Financial Institution
2
Law Enforcement
11
GOOD AML/CFT FRAMEWORK

• Enhances efficiency capacity in
• Detection of corruption financial fraud
• Preventing bribery of public officials
• Discourages
• tax evasion
• growth of underground economy
• Promotes legitimate private business sector
• Enhances financial sector supervision
• Avoid name shame process

12
FATF NCCT LISTwww1.oecd.org/fatf/NCCT_en.htm
(revised Sept 2001)

• 1. Cook Islands
• 2. Dominica
• 3. Egypt
• 4. Grenada
• 5. Guatemala
• 6. Hungary
• 7. Indonesia
• 8. Israel
• 9. Lebanon
• 10. Marshall Islands

• 11. Myanmar
• 12. Nauru
• 13. Nigeria
• 14. Niue
• 15. Philippines
• 16. Russia
• 17. St. Kitts and Nevis
• 18. St. Vincent and the Grenadines
• 19. Ukraine

13
AML/CFT ORGANIZATIONS REFERENCES

• United Nations www.un.org
• UN Global Program Against Money Laundering
• UN Security Council Counter-Terrorism Committee
• Model laws regulations www.imolin.org
• Fin. Action Task Force Ag. Money Laundering
  FATF www1.oecd.org/fatf
• 40 AML Recommendations 8 new CFT
  Recommendations
• Regional FATF organizations
• NCCT List www1.oecd.org/fatf/NCCT_en.htm
• Egmont Group see FATF website
• Quick reference
• U.S. State Dept. Country summaries
• www.state.gov/documents/organization/8703.pdf

14
FINANCIAL SECTOR ASSESSMENT PROGRAMS (FSAPs)

• Joint Bank-Fund Assessments
• Identify strengths, vulnerabilities risks
• Ascertain development TA needs
• Review observance/implementation of relevant
  international standards codes (ROSCs)
• Technical assistance follow-up

15
ROSC STANDARDS

• Core Principles for Effective Banking
  Supervision, 1997
• IAIS Insurance Core Principles, 2000
• IOSCO Objectives Principles for Securities
  Regulation, 1998
• Accounting
• Auditing
• Insolvency creditor rights
• Corporate governance
• IMF Code on Monetary/Financial Policy
  Transparency (MFP Code), 2000
• CPSS Core Principles for Systemically Important
  Payment Systems, 2001
• Data dissemination (IMF)
• Fiscal transparency (IMF)

16
AML/CFT ASSESSMENT METHODOLOGY

• Money laundering properly criminalized?
• KYC policies/procedures required?
• Compliance officers staff training required?
• Financial Intelligence Unit (FIU) operational?
• Sectors entities are covered?
• Financial institutions
• Securities, insurance, leasing companies
• Casinos, other entities, professions
• Cooperation permitted (domestic international)?
  
• Penalties sufficient?

17
PROGRESS TOWARD AN AML/CFT ROSC

• Draft comprehensive methodology completed
• Bank/Fund role in assessments using the
  comprehensive methodology
• Modalities for assessment
• Issues regarding a ROSC

18
TA COORDINATION

• Bank/Fund initiative
• April 22 TA coordination meeting
• Participation of key external partners
• Coordination focused around FATF-style regional
  bodies (FSRBs)
• TA requests to be compiled and submitted to
  donors for response
• Bank following up at FSRB meetings

19
AML/CFT activities in Latin America

• Juan Ortiz
• LCSFF