Asia/Pacific Group on Money Laundering WB/APG Regional Workshop for Training Supervisors on AML/CFT Compliance Supervision Jakarta, Indonesia, May Session 2 (a): Key findings on AML/CFT supervision from MERs/DARs – Strengths and Weaknesses Mr Lindsay Chan Executive Officer APG Secretariat

Asia/Pacific Group on Money Laundering APG Mutual Evaluations – Second Round Report Adopted -Australia -Cambodia -Canada -Chinese Taipei -Fiji -Hong Kong, China -Indonesia -Japan -Macao, China -Malaysia -Mongolia -Myanmar -Palau -Samoa -Singapore -Sri Lanka -Thailand On-site Completed Bangladesh Philippines Vietnam Cook Islands Pakistan New Zealand Planned 1.Afghanistan 2.Lao PDR

Asia/Pacific Group on Money Laundering Relevant FATF Recommendations Financial Institutions CDD and Record Keeping – R.5-12, SRVI Suspicious Transactions Reporting - R.13-15, SRIV Other Measures (shell banks and CTRs) - R.18, 19 Measures with respect to Countries - R.21, 22 Supervisory Authorities Supervision – R.23 Supervisory Powers – R.29 Sanctions – R.17 Guidance and Feedback – R.25 Domestic and International Cooperation – R.31 and 40 Resources and Statistics – R.30, 32

Asia/Pacific Group on Money Laundering Ratings from APG Mutual Evaluations Recommendations 23, 29, 17, 25 R.23, mostly PC but also NC and LC R.29, mostly PC, some LC/C but no NC R.17 mostly PC but also NC and LC All financial institutions/sectors and not just banking sector Consolidated rating – difficult to separate banking sector from non-banking financial sectors

Asia/Pacific Group on Money Laundering Risk Assessment No jurisdiction has undertaken a comprehensive risk assessment. Some jurisdictions have exempted certain sectors based on risk but assessors have concluded that no proper risk assessments were conducted. FATF risk exemption approach is based on proven low risk of ML/TF and NOT the opposite approach i.e. AML/CFT applied when there is a proven ML/TF risk.

Asia/Pacific Group on Money Laundering Guidelines and Other Enforceable Means Issues identified in mutual evaluation reports of whether “Guidelines” issued by competent authorities are “Other Enforceable Means”. Other Enforceable Means” refers to guidelines, instructions or other documents or mechanisms that set out enforceable requirements with sanctions for non-compliance. FATF inclusion of “Drivers”.

Asia/Pacific Group on Money Laundering Designated AML/CFT Supervisory Authority (R. 23) and Resources (R.30) Legal: No designated AML/CFT supervisor or lack of clarity Integrated Prudential and AML/CFT Supervisor FIU based in Central Bank undertakes AML/CFT supervision FIU as AML/CFT supervisor Lack of resources for designated supervisor Scope issues – not all institutions are covered

Asia/Pacific Group on Money Laundering Market Entry (Recommendation 23) Banking licence requirements (but not always based on services provided). Fit and proper test requirement but not sufficiently comprehensive e.g. excludes senior management. Lack of beneficial ownership requirements for both natural and legal persons with significant or controlling interest– local and foreign. Some issues with on-going monitoring and compliance with fit and proper test requirements.

Asia/Pacific Group on Money Laundering Ongoing Supervision (Recommendation 23) No off-site and on-site supervision Regular off-site and on-site supervision with a r isk based approach Lack of effectiveness despite presence of risk assessment and off-site and on-site supervision e.g. not identifying systemic problems or violations On-site visits deficient in approach e.g. no sampling or focused on awareness raising

Asia/Pacific Group on Money Laundering Supervisory Powers (Recommendation 29) Adequate powers to undertake on-site inspection but there are scope issues - Inspection limited because of shortcomings in AML/CFT requirements e.g. limited to CDD, STR reporting and record keeping. The power to compel production of records is limited e.g. on data and records of deposits and withdrawals. Supervisors don’t have powers, beyond onsite inspections, to compel or obtain access to relevant records to monitor compliance. Effectiveness: lack of use of powers e.g. lack of inspections or sanctions.

Asia/Pacific Group on Money Laundering Sanctions (Recommendation 17) Lack of effective, proportionate and dissuasive sanctions. Only criminal/penal sanctions available even for administrative violations. There is no criminal sanction for legal persons (Financial Institutions). Available administrative penalties are inconsistent. There is a lack of persuasive monetary penalties available.

Asia/Pacific Group on Money Laundering Sanctions (Recommendation 17) The type and nature of sanctions actually imposed is inadequate in view of the many AML/CFT non-compliance findings. The authorities have not adequately reviewed the appropriateness of sanctions in light of the large number of warnings issued to financials institutions. The lack of effective sanctions applied in cases of major deficiencies raises real concern in terms of effectiveness of the sanction regime. No criminal sanctions have been applied, despite the existence of known serious breaches. No statistics available showing how many sanctions had been imposed.

Asia/Pacific Group on Money Laundering Guidance and Feedback (Recommendation 25) Reporting guidelines and basic STR guidelines, measures are adequate. Other guidelines—i.e., internal controls, CDD not covered. Lack of specific sectoral guidelines. The approach taken to establishing guidelines is not clear and shifts the obligation to issue guidelines to financial institutions - The competent authorities are required to merely “review” the guidelines and procedures. Guidance (including typologies) issued to financial institutions does not cover all of the issues in the relevant FATF Recommendations. Guidance has not been updated consistent with current AML/CFT requirements.

Asia/Pacific Group on Money Laundering Guidance and Feedback (Recommendation 25) The only feedback provided is the acknowledgment for submitted suspicious transaction reports. Inadequate feedback on STR reporting. Need to provide more specific feedback including statistical comparisons of STRs submitted and typologies data.

Asia/Pacific Group on Money Laundering Domestic and International Cooperation (Recommendations 31 and 40) There is scope to improve co-operation/co-ordination between AML/CFT supervisory agencies, and also to enhance co-operation at the policy level Financial regulators and the FIU do not share sufficient information regarding compliance in the financial sector. The supervisory authorities have no arrangements for international cooperation in AML/CFT.

Asia/Pacific Group on Money Laundering THANK YOU! QUESTIONS?