Anti-Money Laundering & Countering the Financing of Terrorism Cari Votava, BFR Richard Zechter, BFR Juan Ortiz, LCSFF Finance Week June 21, 2002

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

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

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

COMMON PREDICATE OFFENCES  Terrorism/terrorist financing  Drug trafficking  Bribery  Smuggling (arms, people, goods)  Theft  Embezzlement  Racketeering  Tax evasion o Gambling o Prostitution

HOW MONEY IS LAUNDERED  Placement  Structuring  Smurfing  Layering  Integration

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.

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

GOALS OF AML/CFT LAWS & 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.

Financial Institution Financial Institution Financial Institution Financial Institution Foreign FIU Prosecutorial Authorities Law Enforcement Basic FIU Concept (one example)

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

FATF NCCT LIST www1.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

AML/CFT ORGANIZATIONS & REFERENCES  United Nations [ ]  UN Global Program Against Money Laundering  UN Security Council: Counter-Terrorism Committee  Model laws & regulations: [  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 [

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

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)

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?

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

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

AML/CFT activities in Latin America Juan Ortiz LCSFF