Public-Private Partnership in AML/CFT & India
Public-Private partnerships, or PPPs (sometimes also referred
to as 3P or P3), are strategic arrangements made between private sector
institutions and government agencies, such as law enforcement and regulatory
authorities. These partnerships can be contractual, corporate, or collaborative
in nature and the role played by public and private sector organizations can be
flexible to meet specific requirements. PPPs provide opportunities for FIs to
collaborate with public sector stakeholders in identifying and addressing
financial crime risks. PPPs can improve the analysis, investigation, and
prosecution of financial crimes, thus benefiting both private parties and their
governments.
gap between the public and private sectors
“There
is a gap. The public sector, primarily law enforcement, targets the
threat—individual or organization, while the finance sector works to protect
the ‘financial rails’ from being used to support criminal and terrorist
activity. Operations are happening in silos, resulting in a misallocation and
inefficient use of resources. Banks often don’t understand how law enforcement
builds a case; law enforcement doesn’t understand the role of banks.”
However, when
designed to link strategy, approach, and execution, anti-financial crime
public-private partnerships can be an integral part of an effective AML/CFT program,
facilitating the exchange of relevant information and enhancing financial crime
intelligence and analysis to combat financial crime. The bilateral
relationships formed through PPPs facilitate knowledge-sharing for both
sectors.
More
specifically, FIs are in a unique position to identify customers and activities
that are likely to pose money laundering and terrorism financing risks. PPPs
provide useful information about suspicious financial transactions to law
enforcement. PPPs also serve to develop intelligence about new and evolving
threats. In this manner, FIs can enhance the quality of the SARs they file,
which in turn provides the government with better data to support their
investigations.
In addition
to better quality and timeliness of suspicious activity reporting, other
benefits of PPPs include:
- The ability to prioritize threats
- More timely investigations
- Increased responsiveness
- Heightened risk awareness
- Better understanding of complex
financial issues and their vulnerabilities to abuse
Furthermore,
FIs that participate in PPPs may be able to:
- Minimize their risk of an enforcement
action
- Increase their AML compliance cost
efficiencies
- Avoid reputational damage associated
with money laundering violations
From a
public sector perspective, public-private partnerships enable organizations to
better understand what the private sector experiences and subsequently inform
policy and the enactment of laws. From a private sector perspective, PPPs offer
regulators an opportunity to explain the application and reasoning behind
certain policies. By leveraging PPPs, the public sector can improve their
understanding of complex financial issues or services and their respective
vulnerabilities, enabling them to pre-empt criminal activity and introduce proactive
measures to support the private sector.
FATF
GUIDANCE: PRIVATE SECTOR INFORMATION SHARING
The Financial Action Task Force (FATF) published its
Guidance for Private Sector Information Sharing on November 4, 2017. The guidance was developed with input from the private sector, including a
public consultation on the draft. The guidance is non-binding and does not overrule national
authorities.
The guidance covers a number of topics, including:
·
Identifying challenges that inhibit
information sharing
·
FATF standards for information
sharing within financial groups, including sharing suspicious transactions and
how it interacts with STR confidentiality and tipping-off provisions
·
FATF standards for information
sharing between financial institutions that aren't part of the same group
·
Country examples, including examples
of collaboration with data protection and privacy authorities
BACKGROUND
AND CONTEXT
1.
Effective information sharing is one of the cornerstones of a well-functioning
AML/CFT framework. Constructive and timely exchange of information is a key
requirement of the FATF standards and cuts across a number of Recommendations
and Immediate Outcomes. Financial institutions should not be unduly prevented
from sharing information for the purpose of ML/TF risk management.
2.
Information sharing for AML/CFT purposes in financial institutions such as
banks can occur at different levels within the same group. Other financial
institutions such as money and value transfer service providers (which operate
mostly through agents or other distribution channels) may have different
business models and structures. The underlying objective of effective
information sharing applies to all such financial institutions operating
through various structures.
3.
Information sharing also takes place between different entities and sectors for
example between financial institutions not part of the same group and public
sectors, and vice versa. Such information flow can take place within the
domestic context or it can be across borders. Public-topublic sharing of
information is equally critical and is an important element for the
effectiveness of the domestic co-ordination and co-operation regime.
4.
Information sharing is critical for combatting money laundering, terrorist
financing and financing of proliferation. Multinational money laundering
schemes do not respect national boundaries. Barriers to information sharing may
negatively impact the effectiveness of AML/CFT efforts and conversely,
inadvertently facilitate operations of such criminal networks. This underscores
the importance of having rapid, meaningful and comprehensive sharing of
information from a wide variety of sources, across the national and global
scale.
5. Sharing
information is key to promoting financial transparency and protecting the
integrity of the financial system by providing financial institutions, and
relevant competent authorities the intelligence, analysis and data necessary to
prevent and combat ML/TF. Similarly, financial institutions look to the public
sector to share information on trend analysis, patterns of behaviour, targeted
suspects or geographical vulnerabilities in order to better manage their risk
exposure, monitor their transaction flows and provide a more useful input to
law enforcement. Public and private sector institutions can be source as well
as target of information flow. The use of data in this manner highlights the
importance of a continuous dialogue between the public and private sectors. The
reliance on shared information also underlines the increased focus of
international efforts towards identifying potential barriers to information
sharing which might impinge on the effectiveness of the system and exploring
possible policy and operational solutions to overcome them.
6. In June
2016, FATF issued Consolidated Standards on Information sharing1 containing
relevant excerpts from the FATF Recommendations and Interpretive Notes which
relate to information sharing. The consolidation of existing Standards without
any amendments was done in order to add value and to help to clarify the
requirements with respect to information sharing, which are spread across 25 of
the FATF Recommendations, and which impact 7 Immediate Outcomes in the FATF
Methodology for assessing effectiveness. These are a starting point for the
issues considered in this paper.
7. The purpose
of this Guidance is to: i. Highlight the usefulness of information sharing
among entities of the private sector (particularly financial institutions) to
increase the effectiveness of their ML/TF prevention efforts. ii. Identify key
challenges that inhibit sharing of information group-wide and between financial
institutions not part of the same group; iii. Clarify the FATF Standards on
information sharing regarding: a) group-wide AML/CFT programmes and within its
context, sharing of information on suspicious transactions within the group,
and how STR confidentiality and tipping-off provisions interact with such
sharing; and b) between financial institutions not part of the same group; iv.
Highlight country examples of collaboration between data protection and privacy
and AML/CFT authorities to serve mutually inclusive objectives; v. Provide
country examples to facilitate sharing of information within group, between
financial institutions not part of the same group; and of constructive
engagement between the public and the private sectors; vi. Support the
effective implementation of the AML/CFT regime, through sharing of information,
both in the national and international context.
8. The
target audiences of this Guidance are: i. Countries and their national
competent authorities with responsibility for AML/CFT; ii. Practitioners in the
private sector, including financial institutions that have groupwide AML/CFT
programme obligations to fulfil or that process customer transactions with
other institutions; and iii. National and supra-national data protection and
privacy (DPP) authorities.
INFORMATION
SHARING UNDER FATF RECOMMENDATIONS
Recommendation
18- Internal controls and foreign branches and subsidiaries Financial
institutions should be required to implement programmes against money
laundering and terrorist financing. Financial groups should be required to
implement group-wide programmes against money laundering and terrorist
financing, including policies and procedures for sharing information within the
group for AML/CFT purposes. Financial institutions should be required to ensure
that their foreign branches and majority-owned subsidiaries apply AML/CFT
measures consistent with the home country requirements implementing the FATF
Recommendations through the financial groups’ programmes against money
laundering and terrorist financing.
As
per the FATF Glossary, “Financial Group means a group that consists of a parent
company or of any other type of legal person exercising control and
coordinating functions over the rest of the group for the application of group
supervision under the Core Principles, together with branches and/or
subsidiaries that are subject to AML/CFT policies and procedures at the group
level.”
AML/CFT
Purposes for Information Sharing
|
Types
of Information |
Examples
of information elements (as available, when necessary) |
AML/CFT
purposes for sharing information within the group |
|
Customer
Information |
Customer
identification and contact information (name and identifier), in case of
legal persons and arrangements: information on nature of its business and its
ownership and control structure; legal form and proof of existence; address
of registered office and principal place of business; Legal Entity Identifier
(LEI) information, financial assets records, tax records, real estate
holdings, information on source of funds and wealth, economic/professional
activity, and account files, whether the customer is a PEP (including close
associates or family members) or not and other relevant elements from
documents collected while on-boarding the customer or updating records,
targeted financial sanction information and any other information, whether
identified from public sources or through internal investigation relating to
ML/TF, risk categorisation of customer etc |
Manage
customer and geographical risks, identify global risk exposure as a result of
on-boarding of the same customer by multiple entities within the group, more
efficient recordkeeping of customer information |
..
|
Types
of Information |
Examples
of information elements (as available, when necessary) |
AML/CFT
purposes for sharing information within the group |
|
Beneficial
Owner Information |
Beneficial
owner identification and contact information, real estate holdings,
information on source of funds and wealth, economic/professional activity,
and account files, whether the beneficial owner is a PEP or not and other
relevant elements from documents collected while on-boarding a customer or
updating records |
Manage
beneficial owner and geographical risks, identify the same beneficial owner
for multiple entities within the group, more efficient record-keeping of
beneficial owner information. |
FIU-INDIA
Initiative for Partnership in AML/CFT (FPAC)
The
emergence of the Public-Private Partnership (PPP) paradigm in the AML/CFT
domain has ushered in a gradual shift from the compliance-based, regulatory and
tick-boxbased approach toward a voluntary, information-sharing and
collaboration-based approach, observed across multiple jurisdictions. In
recognition of said shift, FPAC (FIU- India Initiative for Partnership in
AML/CFT), a public private partnership (PPP) framework, was launched in
January, 2022, to facilitate collaboration between FIU-India and other stakeholders
in the AML/CFT domain.
FIU-India is the convenor of the group, while
the Reserve Bank of India (RBI) and 66 reporting entities have been included as
permanent invitees and 5 entities/ Statutory Bodies have been included as
special invitees. The reporting entities were chosen in a manner to accommodate
the optimum geographical and sectoral spread, with due regard for the impact of
emerging technologies on the financial space and India’s unique socio-economic
landscape and with an eye on future expansions.
Collaborative
engagements under the auspices of FPAC have facilitated discussions on
strategic and tactical intelligence sharing. FPAC has also provided a platform
for knowledge sharing on emerging trends/technologies, deliberations on quality
of financial intelligence filed, best practices and other incidental matters
pertaining to collection, analysis and dissemination of actionable financial
intelligence.
Apart
from the quarterly meetings of the group, the charter of FPAC also providesfor
adhoc, issue- based interactions and working groups with special invitees, such
as, law enforcement agencies, other sectoral regulators, academic institutions,
consultancy firms, think tanks and software developers, with the aim to develop
knowledge products such as joint research reports and best practice guides. In
pursuance of the same, FPAC is in the process of further expansion of its
membership and constitution of working groups on emerging issues in AML/CFT and
regulation.
It is believed that an effective national
AML/CFT regime must look to facilitate optimum leveraging of public and private
sector capabilities to accomplish its objectives. Further, collaboration with
private sector assumes special importance in jurisdictions like India with vast
sectoral diversity which is reflective of the socio-economic and political
diversity in the country. In its capacity as the first and one- of-a-kind
initiative, FPAC is expected to play a crucial role in assisting India to
address said diversity through diversification of its AML/CFT strategy and
build a collaborative ecosystem to aid in the effective implementation AML/CFT
objectives
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