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Hidden Money, Hidden Resources Dinero oculto, recursos ocultos Who Makes the Financial Transparency Rules? An AML/CFT African Development Country View.

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Presentation on theme: "Hidden Money, Hidden Resources Dinero oculto, recursos ocultos Who Makes the Financial Transparency Rules? An AML/CFT African Development Country View."— Presentation transcript:

1 Hidden Money, Hidden Resources Dinero oculto, recursos ocultos Who Makes the Financial Transparency Rules? An AML/CFT African Development Country View Kathy Nicolaou-Manias

2 Hidden Money, Hidden Resources Dinero oculto, recursos ocultos 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 Hidden Money, Hidden Resources Dinero oculto, recursos ocultos Who Bears the Burden of ML and IFFs in Developing Countries Understanding the link between the Illicit Economy, IFFs and Money Laundering

4 Hidden Money, Hidden Resources Dinero oculto, recursos ocultos Who Bears the Burden of ML and IFFs in Developing Countries Who bears the burden of ML, TF and IFFs in Developing Countries? Global Distribution of Non-Normalised IFFs: Average between Revenues: MNCs/Organised crime syndicates produce goods and services or extract resources (legally/illegally). 1 2 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 Source: GFI and NyTid Magazine, United Nation Association of Norway, International Money Laundering Information Network 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.

5 Hidden Money, Hidden Resources Dinero oculto, recursos ocultos 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 AfricaAsia Developing Europe Middle East and North Africa Western Hemisphere All Developing Countries Total (Cumulative) Share of the region in Total 4.6%44.3%17.1%19.0%15.0%100.0%

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

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

8 Hidden Money, Hidden Resources Dinero oculto, recursos ocultos Who Sets the Standards? Accounting AML/CFT and Corruption Banking and Payments Systems Corporate Governance Monetary and Fiscal Transparency Auditing Type Institutions UN IMF WB G6/7/5 G20 OECD NEPAD Overarching Institutions Standard Setting Authorities BASEL FSB/Forum IBA IASB IFAC UNCAC UNCITRAL IAASB FATF CPSS IADI IOSCO IAIS IOPS EC/ECB Informal / Associate / Committees / Agencies Civil Society, NGOs etc… FAFT regional Bodies (CFATF, EAG, GIABA, ESAAMLG, Moneyval, APG, GAFISUD, MENAFATF) EGMONT Credit rating agencies African Tax Admin Forum TI EITI GFI FTC TJN Christian Aid Eurodad Global Witness Latindadd etc… Financial Accountability, Stability, Integrity and Transparency

9 Hidden Money, Hidden Resources Dinero oculto, recursos ocultos Which Developing Countries have a VOICE? International Accounting Standards Board International Federation of Accountants Basel Committee on Banking Supervision OrganizationCategoryDeveloped 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

10 Hidden Money, Hidden Resources Dinero oculto, recursos ocultos Which Developing Countries have a VOICE? International Accounting Standards Board International Federation of Accountants Basel Committee on Banking Supervision OrganizationCategory 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 172 parties *NON-AFRICAN MEMBERS include: Chad, Somalia, South Sudan, Eritrea UNCITRAL International Trade law Electronic Commerce Security Interests 14 Asian (11 Developing) 18 European (5 Developing) 7 South American (All Developing) 5 North American (3 Developing) 2 Oceanian (1 Developing) Algeria, Benin, Botswana, Cameroon, Egypt, Gabon, Kenya, Mauritius, Morocco, Namibia, Nigeria, Senegal, South Africa, Uganda

11 Hidden Money, Hidden Resources Dinero oculto, recursos ocultos Which Developing Countries have a VOICE International Accounting Standards Board International Federation of Accountants Basel Committee on Banking Supervision OrganizationCategoryDeveloped 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 South Africa 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, ChinaSouth Africa

12 Hidden Money, Hidden Resources Dinero oculto, recursos ocultos Which Developing Countries have a VOICE? International Accounting Standards Board International Federation of Accountants Basel Committee on Banking Supervision OrganizationCategory 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

13 Hidden Money, Hidden Resources Dinero oculto, recursos ocultos Which Developing Countries have a VOICE International Accounting Standards Board International Federation of Accountants Basel Committee on Banking Supervision OrganizationCategoryDeveloped 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

14 Hidden Money, Hidden Resources Dinero oculto, recursos ocultos Which Developing Countries have a VOICE International Accounting Standards Board International Federation of Accountants Basel Committee on Banking Supervision OrganizationCategory 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

15 Hidden Money, Hidden Resources Dinero oculto, recursos ocultos Which Developing Countries have a VOICE? International Accounting Standards Board International Federation of Accountants Basel Committee on Banking Supervision OrganizationCategory 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)

16 Hidden Money, Hidden Resources Dinero oculto, recursos ocultos Which Developing Countries have a VOICE? International Accounting Standards Board International Federation of Accountants Basel Committee on Banking Supervision OrganizationCategory 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…) 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 Hidden Money, Hidden Resources Dinero oculto, recursos ocultos Can African Developing Countries Implement the IFF and ML Transparency Tools? Beneficial Ownership (and KYC) Country-by-Country Reporting Automatic Exchange of Information Trade Mispricing Anti-money Laundering Tackling IFFs through transparency 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.

18 Hidden Money, Hidden Resources Dinero oculto, recursos ocultos 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 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?? COMPLIANCE TO INTERNATIONAL TRANSPARENCY and FINANCIAL STABILITY STANDARDS

19 Hidden Money, Hidden Resources Dinero oculto, recursos ocultos 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 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 Hidden Money, Hidden Resources Dinero oculto, recursos ocultos 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. Sender BitPesa converts BTC in KES and sends it on 3% Buy BTC in £ and send to BitPesa Recipient Thought Experiment on Bitcoin Exchange and Money Flows (IFFs)??

21 Hidden Money, Hidden Resources Dinero oculto, recursos ocultos 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 Hidden Money, Hidden Resources Dinero oculto, recursos ocultos Questions


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