The IMF and the International AMLCFT Standards

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The IMF and the International AML/CFT Standards

• Workshop in Public-Private Cooperation in
  Combating the Financing of Terrorism
• Zurich, Switzerland, December 56, 2005
• R. Barry Johnston
• International Monetary Fund

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Content

• The IMFs work with respect to AML/CFT
• Assessments
• Views on compliance with international standards
• Technical assistance
• Current challenges for countries and the
  international community
• Issues going forward
• Sequenced approach to implementation of the
  international AML/CFT standard
• Regional perspectives some observations of the
  current situation and the next steps

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Fund/Bank Work on AML/CFT

• Since 2001, Fund and Bank have developed
  substantial expertise and experience in AML/CFT
• Fund/Bank have carried out numerous assessments
  against the AML/CFT standard
• Assessments have been supported with technical
  assistance
• Assessments and TA carried out in close
  cooperation with a broad range of collaborators
  and donors FATF, FSRBs, UN Agencies, bilateral
  donors

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Assessments

• During the Pilot Program (20022004)
• IMF-World Bank Combined
  38
• FATF/FSRB Combined 21
• 2004 Methodology (Planned Annual Rate 200405)
• IMF-World Bank Combined 1215
• FATF/FSRB Combined 2025

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Implementing International StandardsA Challenge
for Both Countries and for the International
Community

• Revisions to the FATF Recommendations have
  increased the complexity of the standard
• Widened the application of Preventive
  MeasuresDNFBPs, Informal Remittances, Charities
• Strengthened preventive measures and emphasis on
  implementation
• Expanded requirements for FIUs
• Increased emphasis on implementation of Special
  Recommendations on Terrorist Financing

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Most Countries Fall Short of the Newly Revised,
Rigorous AML/CFT Standard
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Compliance with the 9 Recommendations against the
Financing of Terrorism
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Common Shortcomings

• Gaps in legal framework, particularly with
  respect to terrorist financing and new areas
• Barriers to international cooperation
• Little awareness of AML/CFT risks by public and
  private sectors
• Poor coordination among government agencies
• Ineffective law enforcement
• Weak supervision
• Inadequate systems and controls among financial
  firms
• Difficulties in designing balanced regulations
  for remittance service providers, non-profit
  organizations and DNFBPs

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The Role of Fund/Bank in AML/CFT Technical
Assistance

• Fund/Bank strengths in legislation and financial
  systems (supervisory aspects) and global reach
  not readily available elsewhere
• Fund/Bank work complements on-going work of other
  donors in law enforcement
• Fund/Bank priorities addressed through
• Outreach
• Training
• Bilateral Technical Assistance

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TA Activities from Jan 2004 to June 2005(IMF/WB
together)
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Technical Assistance Jan 2004 June 2005
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Approximate Regional Distribution of all IMF/WB
Activities
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Coordination, Training, and Outreach
Engaged in approximately 195 activities January
2004 June 2005 to

• Coordinate activities with FSRBs and other
  international bodies
• Train mutual evaluators of FATF-style regional
  bodies
• Raise awareness among public and private sectors,
  both regionally and bilaterally
• Develop policies on remittances and new sectors
  (DNFBPs)

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Results of Our Technical Assistance

• 37 countries are at various stages of
  adopting/revising AML/CFT legislation on the
  basis of the TA provided
• 19 are developing supervisor guidance, inspection
  manuals and more recently, guidance notes
• TA provided has contributed to the establishment
  or strengthening of FIUs
• Regional workshops on AML/CFT have been
  successful in providing training to approximately
  1000 officials from 111 countries

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Key Challenges in Implementing the Recommended
Reforms

• Corruption and weak governance
• Achieving sufficient political commitment
• High start-up and ongoing costs to implement the
  AML/CFT standard
• Low-income countries face resource constraints in
  implementing AML/CFT regimes

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Addressing the Rudimentary Nature of the AML/CFT
Regimes in many Countries

• Building political commitment including to
  coordinate the efforts to fight corruption and
  money laundering
• Intensifying technical assistance
  effortsadditional resources are need form donors
• Attention to sequencing in implementation to take
  account of
• Capacity and resource constraints in view of the
  high start-up and ongoing costs of implementation
• Significant ML/FT risks
• Risks to the economies for noncompliance

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Sequencing in Implementation
Awareness Raising
Conduct TA Needs Assessment and Develop
Sequenced TA plan
P o l i c i e s
Create/Update Legal Framework
Build Supervisory Capacity
Develop an FIU
Address DNFBPs
Stage I Stage 2 Stage 3
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Areas to Prioritize as Part of a Sequenced
Approach?

• Criminalization of ML/FT activities
• Effective preventive measures in the banking
  system, including the global network of
  correspondent accounts, and wire transfers
• Asset freezing and forfeiture regimes
• Cooperation and information sharing arrangements
• Establishment of financial intelligence units

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Regional Perspectives Africa

• Only a few countries in Africa have implemented
  AML/CFT regimes, most have only rudimentary
  AML/CFT measures
• Priority to deepen political commitment, and
  raise public awareness of AML/CFT through
  outreach and awareness raising
• Major risks involve potential loss of access to
  international fund flows (through restrictions on
  correspondent banking and remittances) and abuse
  for ML/FT

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Regional Perspectives Asia Pacific

• More advanced than Africa, but several countries
  have very rudimentary systems
• Some countries are taking initial steps to
  establish AML/CFT regimes while others try to
  deepen their already existing AML/CFT
  infrastructure
• Needs assessments missions focusing on the
  identification of gaps and developing priorities
  for these countries
• Some countries face risks of loss of
  correspondent accounts and restrictions on
  remittance flows

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Regional Perspectives Eastern and Central Europe

• Delivery of TA has included intensive needs
  assessments and assistance in the creation and
  strategic development of the basic framework for
  AML/CFT in a number of countries, mostly in the
  Balkan region and some CIS countries
• Increasingly, emphasis is being placed on
  strengthening FIUs, the role of nonbank financial
  institutions and designated nonfinancial
  businesses and professions, and the training of
  criminal justice officials

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Regional Perspectives Middle East, Central
Asia, and Caucasus

• Limited AML/CFT infrastructure in many Middle
  East and Central Asian countries, TA needs are
  considerable
• Legal drafting and capacity building including
  development of skills of financial sector
  regulators are anticipated to be priorities

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Regional Perspectives Latin America and the
Caribbean

• Most countries in the region have established
  AML/CFT mechanisms with significant variations in
  their scope and degree of implementation among
  them
• The existence of significant offshore financial
  sectors in some countries calls for enhanced
  attention, resources, and TA for regulators of
  these sectors
• After an initial high level of demand for
  assistance with respect to the banking sector,
  the demand for TA has shifted to new areas,
  especially the insurance sector and FIUs

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Conclusion

• Rudimentary AML/CFT systems in many countries
• Intensified global effort
• Building political commitment
• Resources for technical assistance
• Recognition of need for a sequenced approach to
  address key risks and capacity constraints