Global Measures on Money Laundering /Financing Terrorism(ML/FT): IMF
Anti-money laundering (AML) and
counter-terrorist financing (CFT) laws are designed to prevent criminals and
terrorists from using the financial system. These laws can help countries
track and stop financial flows linked to serious crime and terrorism
A coordinated response is essential to effectively combat money laundering and terrorism financing. Through international collaboration, countries can develop and adopt global standards, best practices, and regulations that enhance the effectiveness of AML/CFT measures. By aligning their frameworks, countries can close regulatory gaps and ensure consistent implementation of preventive measures, such as Customer Due Diligence (CDD), suspicious transaction reporting, and sanctions enforcement. This coordinated approach reduces the opportunities for criminals and terrorists to exploit jurisdictional disparities and weak enforcement mechanisms, ultimately strengthening the integrity and resilience of the global financial system.
International
cooperation also enables governments to combine their resources and knowledge,
improving their overall ability to combat money laundering and terrorism
financing. The expertise and technological support offered by more developed
economies can be especially helpful to developing countries. Capacity-building
initiatives, such as training programs and workshops, foster the transfer of
skills and knowledge, enabling countries to improve their AML/CFT capabilities.
Additionally, resource sharing in terms of financial intelligence units,
technology platforms, and analytical tools enables countries to leverage each
other's strengths, leading to more efficient and cost-effective investigations.
By empowering countries with the necessary resources and skills, international
collaboration strengthens the global AML/CFT framework and promotes a more
level playing field in the fight against financial crime and terrorist activities.
Operation Trojan Shield: An outstanding example of
effective international cooperation in the fight against organized crime and
money laundering is Operation Trojan Shield , running between
2018 and 2021. This was a
global law enforcement operation directed by the Federal Bureau of
Investigation (FBI) and assisted by Europol and many other partner agencies.
The operation involved infiltrating a popular encrypted communication platform
used by criminals, allowing law enforcement agencies to monitor and intercept
their communications. More than 800 people involved in drug trafficking, money
laundering, and other illegal acts were detained as a consequence of this
international operation, which 16 nations worked together to carry out.
Operation Trojan Shield highlights the effectiveness of international
cooperation in sharing intelligence, coordinating actions, and disrupting
transnational criminal networks.
The World Bank and IMF support member countries in strengthening their financial systems and institutions. They provide technical assistance, capacity building, and policy advice, including initiatives related to AML/CFT. Both organizations emphasize the importance of sound financial governance and effective regulatory frameworks to combat money laundering and terrorist financing, aligning their efforts with the broader goal of promoting economic stability and development.
This post examines the efforts of IMF. At the end , links are given about other global institutions involved in the fight against ML/FT
The International Monetary Fund (IMF)
The IMF’s, primary purpose is to ensure stability of the international monetary system. The IMF is concerned about the consequences money laundering and related crimes can have on the integrity and stability of the financial sector and the broader economy.
Money laundering requires an underlying, primary, profit-making crime (such as corruption, drug trafficking, market manipulation, fraud, tax evasion), along with the intent to conceal the proceeds of the crime or to further the criminal enterprise. These activities generate financial flows that involve the diversion of resources away from economically- and socially-productive uses—and these diversions can have negative impacts on the financial sector and external stability of member states. They also have a corrosive, corrupting effect on society and the economic system as a whole. Because of the negative consequences of these forms of financial abuses on our members’ economies and financial systems, the IMF has been very active for over ten years in the AML/CFT area.
AML/CFT controls, when effectively implemented, mitigate the adverse effects of criminal economic activity and promote integrity and stability in financial markets.
The international community has made the fight against money laundering and the financing of terrorism a priority. Among the goals of this effort are: protecting the integrity and stability of the international financial system, cutting off the resources available to terrorists, and making it more difficult for those engaged in crime to profit from their criminal activities. The IMF's unique blend of universal membership, surveillance functions, and financial sector expertise make it an integral and essential component of international efforts to combat money-laundering and the financing of terrorism.
In 2000, the Fund responded to calls from the international community to expand its work in the area of anti-money laundering (AML) in general and concerning the abuse of Offshore Financial Centers (OFC) in particular by initiating an OFC assessment program and exploring how it could incorporate AML work into its activities, especially Article IV surveillance and the newly-established Financial Sector Assessment Program (FSAP).1 Work on developing an AML Report on Standards and Codes (ROSC) module was ongoing when the tragic events of September 11, 2001 intensified the efforts and broadened their scope to include combating the financing of terrorism (CFT). Within about a year, the Fund was already actively at work assessing member countries compliance with the international standard developed (and subsequently fundamentally revised) by the Financial Action Task Force (FATF), as well as providing technical assistance on how to improve AML/CFT regimes. This preliminary experience was favorably evaluated by the Board, which in March, 2004, decided to incorporate AML/CFT assessments and AML/CFT technical assistance into the Fund's regular work and continue to make AML/CFT assessments a mandatory ROSC in every FSAP and OFC assessment.
The IMF is especially concerned about the possible consequences of money laundering and the financing of terrorism on its members' economies. These include risks to the soundness and stability of financial institutions and financial systems, increased volatility of international capital flows, and a dampening effect on foreign direct investment. The problem is global; money launderers and terrorist financiers exploit loopholes and differences among national AML/CFT systems and move their funds to or through jurisdictions with weak or ineffective legal and institutional frameworks.
The IMF is contributing to the international fight against money laundering and the financing of terrorism in several important ways, consistent with its core areas of competence. As a collaborative institution with near universal membership, the IMF is a natural forum for sharing information, developing common approaches to issues, and promoting desirable policies and standards -- all of which are critical in the fight against money laundering and the financing of terrorism. In addition, the IMF's broad experience in conducting financial sector assessments, providing technical assistance (TA) in the financial and nonfinancial sectors, and exercising surveillance over members economic systems is particularly helpful in evaluating country compliance with the international AML/CFT standards and in developing and implementing programs to assist member countries in addressing identified shortcomings.
Since
2001, the World Bank and IMF involvement in those issues has been intensified,
with a sharper focus on both anti-money-laundering (AML) measures and efforts
aimed at combating the financing of terrorism (CFT). Both the Bank and the Fund
have worked closely with the Financial Action Task Force on Money Laundering
(FATF), the standard setting body in this area, to develop a methodology for
assessing the observance of international standards on the legal,
institutional, and operational framework for AML–CFT.
The Bank and the Fund conduct assessments of AML–CFT regimes as part of the FSAP assessments and, in the case of the Fund, as part of OFC assessments. Assessments are also conducted as part of the mutual evaluations for FATF members, which are done by FATF or FATF-style regional bodies (FSRB)
Financial Sector Assessment Programme
(FSAP)
Provides a comprehensive, in-depth analysis of the resilience of a country’s financial sector. A crucial part of the IMF’s financial surveillance, it includes “stress tests” of financial institutions, an evaluation of the quality of supervision and regulation of the sector, and an assessment of the crisis management framework. To date, more than three-quarters of IMF’s member countries have undergone assessments.
The purpose of a FSAP is to help countries minimize the occurrence and severity of financial crises. The FSAP was launched in 1999 with two goals in mind:
To gauge the stability and soundness of country’s financial sector and assess what the financial sector can contribute to growth and development.
FSAPs are done jointly by IMF and World Bank staff
in developing and emerging market countries and by the IMF alone in advanced
economies. The IMF specializes in the stability aspects while the World Bank
focuses on the developmental needs of the financial system.
Offshore Financial
Centers (OFCs) Assessments
Offshore finance can be defined as the provision of financial
services by banks and other agents to non-residents, including the bank
intermediation role of taking deposits from non-residents and lending to non-residents.
Other services provided include fund management, insurance, trust business,
asset protection, corporate planning and tax planning.
Amongst
the many definitions of Offshore Financial Centers (OFCs), perhaps the most
practical characterizes OFCs as centers where the bulk of financial sector
transactions on both sides of the balance sheet are with individuals or
companies that are not residents of OFCs, where the transactions are initiated
elsewhere, and where the majority of the institutions involved are controlled
by non-residents. Thus many OFCs have the following characteristics:
·
Jurisdictions that have financial
institutions engaged primarily in business with non-residents;
·
Financial systems with external
assets and liabilities out of proportion to domestic financial intermediation
designed to finance domestic economies; and
·
More popularly, centers which
provide some or all of the following opportunities: low or zero taxation;
moderate or light financial regulation; banking secrecy and anonymity
Financial
Stability Forum (FSF)
The
FSF was created in February 1999 to promote international financial stability
through enhanced information exchange and international cooperation in
financial market supervision and surveillance
The Interim Committee,
together with the FSF and the G7, have expressed concerns about offshore
finance and offshore financial centers. These reflect
anxieties about ineffective financial supervision, strict bank and corporate
secrecy rules that hinder investigation, arrangements that facilitate money
laundering and other financial crimes, and loss of tax revenues onshore. On
supervision, concerns about offshore centers include weaknesses in licensing,
"know your customer" requirements, and other supervisory weaknesses
that make more difficult consolidated supervision by countries whose financial
institutions have operations in OFCs. Evidence of these problems can be seen in
the crises in Venezuela, Ecuador, and Thailand and in
the results of the Basel Core Principles Assessments where, out of 21 countries
assessed on the score of consolidated supervision, serious weaknesses were
found in 14
Currently, the
three main areas of IMF work in connection with AML/CFT are:
Assessments: Each
evaluation of financial sector strengths and weaknesses conducted under
the Financial Sector
Assessment Program (FSAP) and the Offshore
Financial Centers Program must include an assessment of the
jurisdiction's AML/CFT regime. Such assessments measure compliance with the FATF
40+9 Recommendations according to an agreed Methodology for
Assessing Compliance with the FATF 40+9 Recommendations also
used by the Financial
Action Task Force (FATF), the FATF-style
regional bodies (FSRBs), and the World Bank in conducting their
assessments;
Technical
Assistance: Along with the World Bank, the IMF provides
substantial technical assistance to member countries on strengthening their
legal, regulatory, institutional and financial supervisory frameworks for
AML/CFT; and
Policy
Development: IMF and World Bank staff have been active in
researching and analyzing international practices in implementing AML/CFT
regimes as a basis for providing policy advice and technical assistance.
The IMF expanded its AML efforts in 2000 and extended them to CFT after the terrorist attacks on September 11, 2001. In 2004, the IMF Executive Board agreed to make AML/CFT assessments and capacity development a regular part of IMF work.
In 2018, as part of its five-year review cycle of policy, the IMF Executive
Board reviewed the IMF’s AML/CFT strategy and gave strategic directions for the work ahead.
The IMF’s bilateral surveillance program evaluates countries’ compliance with
the international AML/CFT standards and helps them develop programs to address
shortcomings. AML/CFT is considered through other IMF work, including the Financial
Sector Assessment Program (FSAP), incorporation into the Fund’s lending programs in certain
cases, and carrying out of AML/CFT assessments and capacity development
activities with our members. The IMF also analyzes the impact of important
developments such as virtual currencies, financial technology (fintech),
Islamic finance, costs of and mitigating strategies for corruption, illicit
financial flows, and the withdrawal of correspondent banking relationships from
a financial integrity perspective.
Over the past 20 years, the Fund has helped shape AML/CFT policies globally, and within its members’ national frameworks. Financial integrity issues are covered (as relevant) in all of the Fund’s functions: surveillance, lending, and capacity development. Staff gives policy advice on macro-critical AML/CFT issues in in Article IV consultations, covers AML/CFT issues relevant to the financial sector’s soundness and stability as part of the Financial Sector Assessment Programs (FSAPs), and inputs into the design and implementation of financial integrity-related measures in Fund-supported programs. The Fund also has an extensive capacity development program on AML/CFT and delivers bilateral, regional, and thematic technical assistance to the membership. Further, the Fund also actively contributes to the global AML/CFT architecture, through participation in standard setting and assessment of countries against the international AML/CFT standards, coordination in speedy delivery, and collaborations on policy dialogue and analytical work. The IMF’s work on AML/CFT is guided by its AML/CFT strategy which is reviewed by IMF’s Executive Board on a five- year policy review cycle. The 2023 Review of the AML/CFT Strategy was endorsed by the Executive Board of the IMF in November 2023.
The 2023 Review of the AML/CFT Strategy will
guide the Fund’s AML/CFT work for the next five years. As part of the Review,
Staff undertook an extensive stocktaking of the Fund’s AML/CFT work from 2018
to 2023, informed by extensive stakeholder consultations. The 2023 Review found
that the current principles of engagement are broadly appropriate. At the same
time, the Executive Board of the IMF endorsed an enhanced focus on the
macro-economic impacts of money laundering, related financial crime and
terrorism financing. The review also comprises five background papers providing
in-depth discussions on key topics.
The five background papers provide in-depth
discussions on the following key topics:
(i)
Illicit financial flows;
(ii)
The impact of money
laundering in financial stability;
(iii)
Synergies between
financial integrity issues and other Fund policies and work;
(iv)
The Fund’s collaboration
with key partners in the AML/CFT global policy architecture; and
(v)
Stakeholders’ views of
the effectiveness of the Fund’s AML/CFT engagement.
2023 Review of the Fund’s Anti-Money Laundering and Combating the Financing of Terrorism Strategy
As financial crimes continue to threaten the
integrity and stability of Fund members’
financial systems and the broader economy, with negative implications for
inclusive and sustainable growth, the Fund maintains a key position to assess
and advise on mitigating the macroeconomic and financial stability impact of
those crimes by promoting effective AML/CFT frameworks.
For over 20 years, the IMF has recognized that effective
AML/CFT frameworks, and financial integrity more broadly, are key to the
soundness and stability of the financial sector and to prevent the negative
macroeconomic implications of financial crimes on the broader economy of
members, progressively integrating this work across all its core functions and
in a broad set of Fund policies.
The review report has identified strategic areas for further action.
Happy reading
Comments
Post a Comment