Preventive Legislations ML/FT - Major Countries/Regions : Selected Nations

 The AML/CFT framework of some of the nations are given below to impress upon readers that the job is on in different countries with enthusiasm and focus, apart from those major nations/regions covered in other related posts.

Japan

Japan is a member of FATF from 1990. Based on the revisions of the FATF 40 Recommendations in 2003, Japan enforced the ‘Act on Prevention of Transfer of Criminal Proceeds’ in 2007. The act has been amended on 28 April 2011 effective from 1 April 2013. Several other laws implemented for AntiMoney Laundering measures include the following:

a) Anti-Drug Special Prevention Law (1992)

b) Act on the Punishment of Organized Crime (2000).

Customer identification and verification for a variety of occasional transactions above the designated threshold of JPY 2,000,000 is required under Article 8, paragraph 1 (i) (p) of the Order for Enforcement of the Act. The threshold is lowered to JPY 100,000 for wire transfers. The listing of occasional transactions covered by this provision is comprehensive and includes transactions “for receiving and paying cash, a check to bearer, cashier’s check or a certificate or coupon of a public or corporate bearer bond” as well as the exchange of Japanese or foreign currencies and the purchase or sale of traveler’s checks. Specified Business Operators are required to verify a natural person’s name and domiciliary address and date of birth by reviewing the customer’s driver’s license or by “any other method specified by an ordinance of the competent ministries.” Specified Business Operators are required to verify the name and location of the head or main office of a legal person using a certificate of registered matters, seal registration certificate or any other document issued by a “public agency” which includes this information.

Amendment of the Act on Prevention of Transfer of Criminal Proceeds

The government has repeatedly considered working on the flaws pointed out by the Third FATF Mutual Evaluation conducted on Japan between 2007 and 2008. As for the recommendation regarding customer due diligence, various discussions were made in the meeting of business operators on customer due diligence for measures against money laundering, which was participated by experts and business people and was established in the National Police Agencyin January 2010. The results of the discussions were subsequently reported in July of the same year. Meanwhile, a close look at the damage of Furikome Fraud that remains at a high level reveals the frequent use of call forwarding service providers (described later) in the crimes and ongoing issues of illicit transfers of savings passbooks as tools for such crimes. Taking into account the abovementioned report and recent trends in the damage of Furikome Fraud and other crimes in the country, a bill on amendments to the Act on Prevention of Transfer of Criminal Proceeds was submitted to the 177th session of the Diet in April 2011, and a law for the amendment of the Act on Prevention of Transfer of Criminal Proceeds was enacted on the 27th of the same month, which was promulgated on the following 28th. It was fully enforced on 1st April 2013.

New Zealand

The Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act) places obligations on New Zealand’s financial institutions, casinos, virtual assets service providers, accountants, lawyers, conveyancers and high value dealers to detect and deter money laundering and terrorism financing.

The Act ensures that businesses take appropriate measures to guard against money laundering and terrorism financing. This enhances the reputation of individual businesses, and of New Zealand as a safe place in which to do business.

The Act came into full force on 30 June 2013.

 

Section 5 of the Act require the business  need:

 

·         Risk Assessment of the money laundering and financing of terrorism that you could expect in the course of running your business

·         An AML/CFT Programme that includes procedures to detect, deter, manage and mitigate money laundering and the financing of terrorism

·         A Compliance Officer appointed to administer and maintain your AML/CFT programme

·         Customer Due Diligence processes including customer identification and verification of identity

·         Suspicious Activity Reporting, Auditing and Annual Reporting systems and processes.

 

On December 7 2021, the Financial Markets Authority (FMA) released a new report, the ‘Anti Money Laundering and Countering Financing of Terrorism Sector Risk Assessment 2021’ (Sector Risk Assessment). The Sector Risk Assessment evaluates the money laundering and terrorism financing (ML/TF) risks posed specifically to the sectors supervised by the FMA, and updates and replaces the Sector Risk Assessment previously issued in 2017.

The FMA supervises reporting entities in ten sectors under the AML/CFT Act. Each of the ten sectors is assigned a risk rating, which is an assessment of the inherent risks of ML/TF in that sector, that ranges from Low, to  Medium-Low, to Medium-High, to High.The FMA has also clarified that the details contained in the National Risk Assessment 2019 have not influenced the risk rating classification for any of the sectors supervised by them.

The FMA has, however, included Virtual Asset Service Providers (VASPs) in its Sector Risk Assessment for the very first time. Nevertheless, as the FMA supervises only a very limited number of VASPs (with the Department of Internal Affairs(DIA) being the primary supervisor), they have largely deferred to the risk rating promulgated by the DIA (who have classified the ML/TF risks associated with VASPs as high), in their Sector Risk Assessment. The FMA notes for instance that “We expect all REs to familiarise themselves with the risks and vulnerabilities associated with VASPs and virtual assets, and incorporate this into your risk assessments where appropriate. At a minimum, REs should closely read the DIA’s sector risk assessment and guidanceon VASPs”.

Australia

Tranche 2 reforms 

 

Australia is expected to introduce Tranche 2 reforms in 2024/2025 to avoid getting added to the FATF grey list. The Attorney General announced a consultation on AML/CFT reforms and indicated that the government had accepted recommendations included in the Senate’s Inquiry into the adequacy and efficacy of Australia’s anti-money laundering and counter-terrorism financing regime.

Tranche 2 reforms have long been a point of contention in Australia. The Senate report included an overview of the regulation of Tranche 2 entities, current and emerging challenges in AML, and various recommendations for improvement. Tranche 2 entities include lawyers, real estate agents, casinos, other gambling service providers, auditors, and precious metal and stone dealers.

Recommendations include introducing gatekeeper regulation and improving the AML/CFT framework. It also advises simplifying AML/CFT rules, supporting the use of technologies to meet know your customer (KYC) obligations, applying a risk-based approach to regulation, pursuing a beneficial ownership register, increasing penalties for money laundering and terrorist financing, and boosting resourcing in AUSTRAC. The Australian government committed AUS$14.3 million over four years to support necessary legislative and regulatory reforms. 

China

China's KYC regulations are governed by the People's Bank of China and the China Banking and Insurance Regulatory Commission. Financial institutions must conduct due diligence on their customers, and the government strictly monitors large transactions and suspicious activities. Mobile payments and digital identity verification have become integral parts of KYC practices in the country.

The primary legislation governing AML in China as follows:

a) Anti-money Laundering Law (2006)

b) Provisions on Anti-money Laundering through Financial Institutions (2006)

c) Administrative Measures for Financial Institutions on Report of Large-sum Transactions and Doubtful Transactions (2006)

d) Administrative Measures for Financial Institutions on Report of Transactions Suspected of Financing for Terrorist Purposes (2007)

e) Administrative Measures for Financial Institutions on Identification of Client Identity and Preservation of Client Identity Materials and Transactions Records (2007).

 

China is a  Member of FATF from 2007.

Since the 2019 Mutual Evaluation by FATF  of the effectiveness of China's measures to combat money laundering and terrorist financing, the country reported back to the FATF in 2020 and 2021 on the actions taken to strengthen its AML/CFT framework.  As a result of this report, the FATF rerated the Country on a number of the 40 Recommendations.  

Today(2021), China is compliant on 9 of the 40 Recommendations and largely compliant on 22of them. It remains partially compliant on 3 Recommendations and non-compliant on 6 Recommendations.

Hong Kong

As an international financial centre, Hong Kong attaches great importance to safeguarding the integrity of our financial systems by implementing international standards on anti-money laundering and counter-terrorist financing (“AML/CTF”) to deter and detect inward and outward flows of illicit funds.

Hong Kong has sectoral regulatory bodies that oversee anti-money laundering and counter-terrorism financing (AML/CFT) efforts, including the Financial Services and the Treasury Bureau (FSTB), the Hong Kong Monetary Authority (HKMA), and the Securities and Futures Commission (SFC)

In February 2023, the Hong Kong Monetary Authority (HKMA) published revised guidance relating to transaction monitoring, screening, and suspicious transaction reporting. The guidance underscored the regulator’s aim for authorized institutions to adopt a system that generates targeted alerts to deliver more actionable insights.

In Hong Kong, money laundering is a serious offence and is regulated primarily under the money laundering and terrorism financing laws are primarily governed by the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (AMLO) and its associated regulations. These laws aim to prevent and detect money laundering, terrorist financing, and other financial crimes by imposing obligations on certain entities who are required to establish clear and comprehensive AML policies that outline their commitment to combating money laundering and terrorism financing

The key obligations under the AMLOinclude:

• Customer due diligence (CDD) - these are measures to verify the identity of their customers and includes obtaining and verifying customer identification documents and assessing the risk associated with each customer.
• Reporting of suspicious transactions - where entities are obligated to report any suspicious transactions or activities that may be related to money laundering or terrorist financing to the Joint Financial Intelligence Unit (JFIU)
• Transaction and cross-border reporting - where entities are required to report certain types of financial transactions, such as cash transactions over a specified threshold and cross-border movement of physical currency or bearer negotiable instruments.
• Compliance programs - where entities must establish and maintain comprehensive AML/CFT compliance programs including enterprise-wide ML/TF risk assessments, internal policies and procedures, staff training, and ongoing monitoring to ensure compliance with the law.
• Record-keeping - where entities must maintain adequate records of customer identification, transactions, and business relationships and retain them for periods specified within the regulations.

Pakisthan

Pakistan's anti-money laundering laws consist of Anti-Money Laundering Ordinance, 2007 and Anti-Money Laundering Regulations 2008. The Anti-Terrorism Act of 2002 defines the crimes of terrorist finance and money laundering and establishes jurisdictions and punishments. The National Accountability Ordinance of 1999, which requires financial institutions to report suspicious transactions to the NAB and establishes accountability courts; and The Control of Narcotic Substances Act of 1997, which also requires the reporting of suspicious transactions to the ANF, contains provisions for the freezing and seizing of assets associated with narcotics trafficking, and establishes special courts for offenses (including financing) involving illegal narcotics. All these laws include provisions to allow investigators to access financial records and conduct financial investigations. The Anti-Money Laundering Act, provides for the prevention of money laundering (AML) and combating financing of terrorism (CFT) in Pakistan. Among other provisions, the act:

·         Establishes a National Executive Committee to make high-level decisions on AML/CFT matters;

·         Establishes a Financial Monitoring Unit (FMU) to receive and analyze reports of suspicious transactions, assist in investigations, recommend changes to regulations, and generally exercise responsibility for AML/CFT; and

·         Provides directions on investigation, search and seizure of property

Pakistanhas a strong and robust Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) framework. It is compliant/largely compliant with 38 out of 40 Financial Action Task Force (FATF) Recommendations, which places Pakistan in the top tier of countries.

The G-7 Initiative

AI regulations 

In October 2023, the G7 issued a Statement on the Hiroshima AI Process, announcing the Hiroshima Process International Guiding Principles for Organizations Developing Advanced AI Systems and the Hiroshima Process International Code of Conduct for Organizations Developing Advanced AI Systems to address identified priorities. In November, the United Kingdom brought together government and technology leaders with twenty-eight governments, including the UK, US, EU, Australia, and China, aggregating to the Bletchley Declaration on AI safety. The declaration highlights the need for international cooperation to address risks associated with AI to harness the “transformative positive potential of AI” while ensuring the development of human-centric, trustworthy, and responsible AI. Companies also agreed to test new models with governments before they are released to manage risks. 

Crucially for AML/CFT professionals, regulators, and policymakers are beginning to sketch out how AI could be regulated nationally. Legislative proposals are at various stages of development across – amongst others – the EU, US, Canada, and UK, with more codified requirements likely to be published through 2024.

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