1. Kathy Nicolaou-Manias
Who Makes the Financial Transparency Rules? An AML/CFT African Development Country View
Kathy Nicolaou-Manias

2. Overview Who bears the burden of ML and IFFs in Developing Countries?
Who Sets the Standards?
Which Developing Countries have a VOICE?
Can African Developing Countries Implement the IFF and ML Transparency Tools?
SO WHAT?
More Woes About Future Transparency: Bitcoin and BitPesa (Case study)
What can we do about Transparency Compliance in Africa?

3. Who Bears the Burden of ML and IFFs in Developing Countries
Understanding the link between the Illicit Economy, IFFs and Money Laundering

4. Who Bears the Burden of ML and IFFs in Developing Countries
Global Distribution of Non-Normalised IFFs: Average between
Who bears the burden of ML, TF and IFFs in Developing Countries?
Resale and Investments: Products can be resold at market (or higher) prices, sometimes back to the original company (incurring further losses), while the surplus is transferred to developed countries. 3
Capital Flight, IFFs, Tax Evasion and
ML: MNCs/Organised crime syndicates sell goods and services (legally/illegally) to their subsidiaries or branches located in tax havens – at misrepresented (lower) prices. Tax evasion robs these countries of tax revenues and the rightful rents due to their productive resources. Using the multiplier effects, the socio-economic effects are large on these developing countries. 2
Revenues: MNCs/Organised crime syndicates produce goods and services or extract resources (legally/illegally). 1
Source: GFI and NyTid Magazine, United Nation Association of Norway, International Money Laundering Information Network

5. Who Bears the Burden of ML and IFFs in Developing Countries
Normative Illicit Financial Flows for the Regions – Billions of US Dollars (Current Prices):
Billions Dollars (US) - Current Prices
Africa
Asia
Developing Europe
Middle East and North Africa
Western Hemisphere
All Developing Countries
2000
10.1
199.7
34.0
43.0
66.5
353.3
2001
8.6
219.7
40.0
35.8
80.7
384.8
2002
12.2
186.5
57.6
37.4
83.4
377.1
2003
22.9
246.2
92.2
82.3
94.7
538.3
2004
26.6
322.5
109.4
135.2
91.3
685.0
2005
28.3
375.5
89.7
154.2
103.5
751.2
2006
38.1
368.2
148.2
247.1
118.7
920.3
2007
62.3
411.9
260.3
214.4
183.5
2008
63.0
493.8
300.2
307.3
150.3
2009
61.6
376.4
106.4
118.2
112.3
774.9
Total (Cumulative)
333.7
Share of the region in Total
4.6%
44.3%
17.1%
19.0%
15.0%
100.0%

6. Who Bears the Burden of ML and IFFs in Developing Countries
Laundering criminal proceeds
Corruption
Tax abuse
Market abuse
Consequences
Macro IMPACTS
Who?
Draining hard currency reserves
Monetary sector destabilisation
impact
Vulnerable and poor: those dependent on social services and welfare, i.e. women, children, the elderly and the unemployed.
Increasing financial liquidity risk
ML and IFFs
Stimulating inflation
Reduced tax revenues and collection (BEPS)
Real sector growth
Y=C+I+G+(X-M)
Undermining trade
Depleting investments
and BEPS
Economic IMPACTS
Weakening governance
Weakening social and economic stability

7. Who Sets the Standards? Type Institutions
Accounting
Auditing
AML/CFT and Corruption
Corporate Governance
Monetary and Fiscal Transparency
Securities Market Regulation, Insurance, Insolvency and Creditors
Banking and Payments Systems
Financial Action Task Force (FATF)
Egmont Group of Financial Intelligence Units
Eastern and Southern Africa AML Group
UNCAC
Institutions
International Accounting Standards Board (IASB)
International Federation of Accountants (IFAC)
Basel Committee on Banking Supervision (BCBS)
International Federation of Accountants (IFAC)
International Auditing and Assurance Standards Board (IAASB)
Committee on Payments and Settlement Systems (CPSS)
BASEL Committee on Banking Supervision
Financial Stability Board
Basel Committee on Banking Supervision
IMF
World Bank
International Monetary Fund (IMF)
International Organisation of Securities Commissions
International Association of Insurance Supervisors (IAIS)
World Bank
International Bar Association
UNCITRAL
Financial Accountability, Stability, Integrity and Transparency

8. Who Sets the Standards? Overarching Institutions Type
Apart from bodies traceable to the “international administration” model, such as the International Monetary Fund (IMF), the World Bank (WB) and the Organization for Economic Co-operation and Development (OECD), transnational regulatory networks such as the Basel Committee on banking Supervision (BCBS), the International Organization of Securities Commissions (IOSCO), the International Association of Insurance Supervisors (IAIS) and the most recent International Organization of Pension Supervisors (IOPS) also develop rules for banking, securities, insurance and pension supervision respectively9. Within these bodies, not the states themselves, but national administrative authorities are represented. Moreover, transnational administrative bodies’ powers are not based on formal treaties but on informal agreements, so both the organization and the functioning of these bodies are flexible and mostly dependent on cooperation between their members10. In addition to the above mentioned transgovernmental regulatory networks, it also brings together intergovernmental international organizations (such as the IMF and the World Bank), national financial authorities and private bodies with regulatory functions, such as the International Accounting Standards Board (IASB) and the International Auditing and Assurance Standards Board
(IAASB).
While in the past they were simply transnational fora of discussion, they have suddenly become important standard setters. In other words, from places devoted to the exchange of ideas, they have evolved into transnational regulatory bodies, shifting many regulatory decisions from the national to the global level. The main reasons for this development can probably be found in the need for regulation perceived by market participants in a globalized world. In order to expand their market position and reduce costs, large firms call for a level playing field12. In other words, global bodies are filling the normative gap left by domestic regulation13. Of course, the rules established by these global bodies are not formally binding. They are issued in the form of guidelines, standards and other norms of general applicability. However, in practice, they are implemented at a national or
international level as though they were mandatory.
Within the context of financial markets, the IMF and WB play a key role toward the implementation and effectiveness of standards. More precisely, the Reports on the Observance of Standards and Codes (ROCSs) compiled by the two above mentioned organizations and their conditioned lending policy are considered two of the most important factors through which non binding standards tend to become mandatory, especially for developing countries21.
Basel Committee on Banking Supervision (BCBS) is the oldest and the least formal of these standards setters. Set up by the G-10 central bank governors at the end of 1974, the Committee does not rely on any treaty or bylaws. The number of its members is very limited (fourteen). The Committee is compounded only by central banks’ governors of the richest countries. It is not a formal supranational authority, but provides a place for the on-going co-operation and coordination of prudential supervision policies by formulating standards, best practice and guidelines.
For example, it is widely believed that developing countries are mostly encouraged to implement global standards by the WB and the IMF35. These organizations are able to include compliance with standards in the conditions that must be fulfilled by a borrowing state. The latter is thus practically forced to apply them. The same does not occur for standard setters’ members. Their compliance is essentially a political issue36. As it happens within traditional international organizations, since decisions are primarily taken
on a consensus basis, members are expected to implement rules on which they have previously given their consent37. UN
IMF WB
G6/7/5
G20
OECD
NEPAD
Overarching Institutions
Type
Accounting
Auditing
AML/CFT and Corruption
Corporate Governance
Monetary and Fiscal Transparency
Banking and Payments Systems
BASEL
FSB/Forum
IBA
IASB
IFAC
UNCAC
UNCITRAL
IAASB
FATF
CPSS
IADI
IOSCO
IAIS
IOPS
EC/ECB
Standard Setting Authorities
Informal / Associate / Committees / Agencies
Institutions
FAFT regional Bodies (CFATF, EAG, GIABA, ESAAMLG, Moneyval, APG, GAFISUD, MENAFATF)
EGMONT
Credit rating agencies
African Tax Admin Forum
Civil Society, NGOs etc… TI
EITI
GFI
FTC
TJN
Christian Aid
Eurodad
Global Witness
Latindadd
etc…
Financial Accountability, Stability, Integrity and Transparency

9. Which Developing Countries have a VOICE?
International Federation of Accountants
Basel Committee on Banking Supervision
Organization
Category
Developed Countries
Non-African Developing Countries
African Developing Countries
G6/ G7 / G8
Economic and Financial Stability
Canada, France, Germany, Italy, Japan, UK, USA (and Russia)
None
G20
Economic Development
Tax
Trade
Corporate Governance
Australia, Canada, France, Germany, Italy, Japan, Republic of Korea, Russia, Saudi Arabia, EU, UK and USA
Argentina, Brazil, China, India, Indonesia, Mexico, Turkey
South Africa
IMF
Monetary Transparency
Fiscal Transparency
Economic Growth and Development
Financial Stability, Integrity and Transparency
Data dissemination
Total of 188 members. Represents Developed, Non-African Developing and African Developing Countries
International Accounting Standards Board

10. Which Developing Countries have a VOICE?
International Federation of Accountants
Basel Committee on Banking Supervision
Organization
Category
Developed Countries
Non-African Developing Countries
African Developing Countries
WORLD BANK
Corporate Governance
Economic Development
Trade
Data dissemination
188 countries represented in the International Bank for Reconstruction and Development (IBRD); and 172 countries represented at the International Finance Corporation (IFC). Each IBRD country should also be a member of the IMF.
UNCAC
Anti-corruption
140 signatories parties
*NON-AFRICAN MEMBERS include: Chad, Somalia, South Sudan, Eritrea
UNCITRAL
International Trade law
Electronic Commerce
Security Interests
14 Asian (11 Developing) European (5 Developing) South American (All Developing) North American (3 Developing) Oceanian (1 Developing)
Algeria, Benin, Botswana, Cameroon, Egypt, Gabon, Kenya, Mauritius, Morocco, Namibia, Nigeria, Senegal, South Africa, Uganda
International Accounting Standards Board

11. Which Developing Countries have a VOICE
Organization
Category
Developed Countries
Non-African Developing Countries
African Developing Countries
Financial Stability Board
Financial stability and integrity
Australia, Canada, France, Germany, Hong Kong, Italy, Japan, Netherlands, Russia, Saudi Arabia, Singapore, South Korea, Spain, Switzerland UK and USA (BIS, ECB, EC, IMF, OECD, WB)
Argentina, Brazil, China, India, Indonesia, Mexico, Turkey
South Africa
BASEL Committee on Banking Supervision
Banking supervision
Cross Border banking
Capital adequacy
Accounting and auditing (ATF)
Australia, Belgium, Canada, France, Germany, Hong Kong, Italy, Japan, Korea, Luxembourg, Netherlands, Russia, Saudi Arabia, Singapore, Spain, Sweden, Switzerland, UK and USA.
Argetina, Brazil, China, India, Indonesia, Mexico, Turkey
International Accounting Standards Board (IASB)
Accounting and Reporting standards
Transparency, integrity and accountability
INDIVIDUAL SPECIALISTS: Netherlands, New Zealand, France, Germany, South Korea, UK and USA (X3)
Brazil, China
International Federation of Accountants
Basel Committee on Banking Supervision
International Accounting Standards Board

12. Which Developing Countries have a VOICE?
International Federation of Accountants
Basel Committee on Banking Supervision
Organization
Category
Developed Countries
Non-African Developing
Countries
African Developing Countries
International Federation of Accountants (IFAC)
Strengthen accounting standards
179 Members from 130 countries
Botswana, Cameroon, Cote D'Ivoire, Ghana, Kenya, Lesotho, Liberia, Malawi, Morrocco, Namibia, Nigeria, Senegal, Sierra Leone, South Africa, Swaziland, Tanzania, Tunisia, Uganda, Zambia, Zimbabwe
International Auditing and Assurance Standards Board (IAASB)
Auditing standards and quality control (falls under IFAC)
See IFAC
International Accounting Standards Board

13. Which Developing Countries have a VOICE
Organization
Category
Developed Countries
Non-African Developing Countries
African Developing Countries
Financial Action Task Force
Combat Money Laundering
Combat Terror Financing
Financial integrity
Financial transparency
Australia, Austria, Belgium, Denmark, European Commission, Finland, France, Germany, Greece, Gulf Cooperation Council, Hong Kong, Iceland, Italy, Japan, Republic of Korea, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Russia, Singapore, Spain, Sweden, Switzerland, UK and USA.
Argentina, Brazil, China, India, Mexico, Turkey
South Africa
International Federation of Accountants
Basel Committee on Banking Supervision
International Accounting Standards Board

14. Which Developing Countries have a VOICE
Organization
Category
Developed Countries
Non-African Developing Countries
African Developing Countries
Egmont Group of Financial Intelligence Units
Informal international network of Financial Intelligence Units
Combat Money Laundering
Combat Terror financing
Financial integrity, stability and transparency
126 member country FIUs (21 from Africa)
Algeria, Angola, Burkina Faso, Cameroon, Chad, Core D'Ivoire, Egypt, Gabon, Ghana, Malawi, Mali, Mauritius, Morocco, Namibia, Nigeria, Senegal, Seychelles, South Africa, Tanzania, Togo and Tunisia
Committee on Payments and Settlement Systems (CPSS)
Monetary and financial stability
Banking services
Financial Integrity
Cross-border flows
Payments systems
172 countries
International Federation of Accountants
Basel Committee on Banking Supervision
International Accounting Standards Board

15. Which Developing Countries have a VOICE?
Organization
Category
Developed
Countries
Non-African Developing Countries
African Developing Countries
International Association of Deposit Insurers
(IADI)
Deposit insurance integrity
Australia, Belgium, Canada, Czech Republic, Finland, France, Germany, Greece, Guernsey, Hong Kong, Italy, Japan, Jersey, Korea, Liechtenstein, Palestine, Poland, Romania, Russia, Singapore, Slovenia, Sweden, Swtizerland, UK and USA.
Albania, Argentina, Azerbaijan, Bahamas, Bangladesh, Barbados, Bosnia, Brazil, Brunei, Bulgaria, China, Colombia, Croatia, Ecuador, El Salvador, Guatemala, Honduras, Hungary, India, Indonesia, Jamaica, Jordan, Kosovo, Kyrgyzstan, Lebanon, Libya, Malaysia, Mexico, Mongolia, Montenegro, Nicaragua, Paraguay, Peru, Phillipines, Serbia, Thailand, Trinidad, Turkey, Ukrane, Uruguay, Venezuela, Vietnam
Algeria*, Kenya, Lebanon, Lesotho*, Libya, Mauritius*, Morocco, Nigeria, South Africa*, Sudan, Tanzania, Uganda, Zimbabwe
(NOTE: * represents associates and not members)
International Federation of Accountants
Basel Committee on Banking Supervision
International Accounting Standards Board

16. Which Developing Countries have a VOICE?
Organization
Category
Developed Countries
Non-African
Developing Countries
African Developing Countries
International Organization of Securities Commissions (IOSCO)
Securities and future trade integrity and transparency
Corporate financial disclosure and transparency
145 members (124 ordinary members, 12 associate members and 64 affiliate members
International Association of Insurance Supervisors (IAIS)
Insurance integrity and standards
Macro-prudential risk and financial stability
Banking and financial regulation
135 countries (plus EC, IMF, OECD, World Bank etc…)
International Federation of Accountants
Basel Committee on Banking Supervision
International Accounting Standards Board
NOTE: Civil Society Organizations and NGOs are a voice monitoring exploitation, tax evasion and resource mobilization in the extractive sectors for developing countries (especially Africa) and raise the plight of these countries.

17. Can African Developing Countries Implement the IFF and ML Transparency Tools?
Excluded from most International Regulatory and Standard Setting bodies - they not involved in the decision making processes.
Financial systems are not advanced – relevant electronic data repositories don’t always exist.
Manual systems make inter-departmental and inter-regional collaboration between tax, customs and banking authorities timely, costly and complex
Capacity and capability may not be present thus increasing the burden of compliance.
Beneficial Ownership
(and KYC)
Country-by-Country Reporting
Automatic Exchange of Information
Trade Mispricing
Anti-money Laundering
Tackling IFFs through transparency

18. FATF Standards initiated in 1998
After 16 years of standards set, policy amendments and incremental rules, how much has been achieved? If Africa is only starting to comply, will there be any resources left??
SO WHAT?
The regulatory standards set by international bodies exclude a large proportion of African countries, who do not comply with the financial transparency standards.
These standards add layers to the bureaucracy and increase the cost of doing business, especially in the financial (Banking, Trading and Insurance) space.
African countries are extremely vulnerable to resource and factor of production “looting” leaving women, children, the unemployed, elderly and rural poor worst off – robbing them of their human right to a dignified life
Low income Developing Countries: Low level of compliance with international transparency tools regarding IFFs and ML. NOTE: There are exceptions with Moderate compliance.
Middle income Developing Countries: Moderate levels of compliance with international transparency tools regarding IFFs and ML. NOTE: There are exceptions with little compliance.
High income Developed Countries: High levels of compliance with international transparency tools regarding IFFs and ML. NOTE: there are exceptions with low compliance
COMPLIANCE TO INTERNATIONAL TRANSPARENCY and FINANCIAL STABILITY STANDARDS
FATF Standards initiated in 1998

19. Universal Bitcoin Companies Other (Financial Services )
So WHAT? More Woes About Future Transparency: Bitcoin and Virtual Currencies
Bitcoin (BTC) is a global Peer-to-Peer currency that is designed for the Internet.
Modeled on gold, behaves like cash online, and can be used by anyone. There will only be a total of 21 million Bitcoins by 2140.
Has no central authority and is a global currency. Is given value by the community – doesn’t need to be accepted by anyone or backed by any authority to succeed.
Virtually impossible to counterfeit as it is an open source protocol.
Can be divided into as small units (up to 8 decimal places )
It is a technology facilitating transactions.
It is a protocol for exchanging value instantly over great distances via a digital connection (internet) without the need for a (financial) intermediary.
Is being applied to payment applications to remit monies, facilitate micropayments, make donations, transfer large scale assets, identity and contract management.
It changes our understanding of financial flows
and the macro-economy.
Universal Bitcoin Companies
Wallets
Exchanges
Other (Financial Services )
Mining
Payment Processing
Bitcoin Value Chain
Due to the cryptography underpinning BTCs, it bypasses all existing financial stability, integrity and transparency standards set: accounting; auditing; banking; payments; AML/CTF; cross-border flows, capital flight, exchange controls; monitoring and tracking …

20. SO WHAT? Case of BitPesa - Less Compliance and Transparency in Kenya
BitPesa is a Bitcoin (BTC) remittance company that integrates with Kenya’s mobile money system M-Pesa. The service allows people living abroad to transfer the value of Bitcoin directly to M-Pesa accounts in Kenya. M-Pesa reached 17m Kenyans in M-Pesa is in SA, Uganda, Ghana and Botswana, and growing. BitPesa has seen astronomical growth recently.
More cost effective than existing remittance services (Western Union, MoneyGram). Traditional remittance services charge up to 7% or more for a minimum amount of £100.
BitPesa transfers small amounts at low costs. One can move a minimum of £20 to a maximum of £400 (due to M-Pesa wallet capacity limitations). BitPesa does not charge a transaction fee but levy a 3% exchange fee when converting from £ to shillings.
Receipt is IMMEDIATE.
Thought Experiment on Bitcoin Exchange and Money Flows (IFFs)??
Buy BTC in £ and send to BitPesa 3%
BitPesa converts BTC in KES and sends it on
Sender
Recipient

21. What Can We Do About Transparency Compliance in Africa?
A more inclusive approach is required for Developing Countries in Africa – and one that does not only rely on representation by South Africa (“Big Brother approach” which is met with resistance).
Informal collaborations are more successful that mandatory unilateral standard setting approaches
Greater collaboration is required between African countries, characterized through:
Regional collaboration
Information sharing
Capacity-building and skill exchanges
Support in advancing technological innovations in the financial, payment, accounting, auditing and AML/CFT space
Oversight over the BTC technology protocol innovations
will easily be adopted in Africa due to the speed, ease and low cost of transacting
reduce the burden of transacting for the poor
will result in increased unreported, unrecorded (and illicit) transactions incl. Capital flight.
Requires a rethink of our understanding of IFFs and Capital Flight.
How is this going to be monitored, regulated in the future?
The plight of Developing Africa needs to be tackled - before resources and factors of production are “looted” from the continent - in a manner that is supportive, inclusive and collaborative, thus addressing the needs of the most vulnerable, namely women, children, the elderly, unemployed and rural poor, thus providing them with their basic human right to a dignified life filled with equal opportunities !!!

22. Questions