Other Influencing Bodies

Other Influencing Bodies Organization of American States: InterAmerican Drug Abuse Control Commission In May 1992, the OAS became the first permanent international body to reach an agreement on model legislation aimed specifically at dealing with money laundering. At its annual general assembly held in Nassau, the Bahamas, the OAS unanimously approved a set of 19 articles written in statutory language that it recommended its member nations enact. The OAS action was the culmination of a two-year effort by the InterAmerican Drug Abuse Control Commission, an OAS entity that uses the acronym CICAD (Comisión Interamericana para el Control del Abuso de Drogas). In 1990, CICAD gathered a group of experts from 14 nations to craft the articles. CICAD’s role includes: • Serving as the Western Hemisphere’s policy forum on all aspects of the illegal drug trade • Fostering multilateral cooperation on drug issues in the Americas • Executing action programs to strengthen the capacity of member states to prevent and treat drug abuse, combat production and trafficking of illicit drugs, and deny traffickers the proceeds of crime • Promoting drug-related research, information exchange, specialized training, and technical assistance • Developing and recommending minimum standards for drug-related legislation, treatment, measurement of both drug consumption and the cost of drugs to society, and drug-control measures, among others • Conducting regular multilateral evaluations of progress by member states in all aspects of illegal drug trade CICAD’s core mission is to strengthen human and institutional capabilities and harness the collective energy of member states to reduce the production, trafficking, and use of illegal drugs in the Americas. It also aims to address the health, social, and criminal repercussions of the drug trade. Within CICAD is an Anti-Money Laundering Unit (CICAD-AMLU), which was established in 1999. The Unit focuses its efforts on providing technical assistance and training to all member states in judicial and financial measures and law enforcement. It also acts as Secretariat of CICAD’s Group of Experts for the Control of Money Laundering. Through the Group of Experts, Model Regulations are developed on money laundering offenses related to drug trafficking and other crimes, including the financing of terrorism. These regulations serve as permanent legal documents that provide a legal framework to member states. They were influenced by and are compatible with FATF’s 40 Recommendations. The entire set of Model Regulations is available at the CICAD website. In 1999, the Inter-American Development Bank (IADB) and CICAD started a program in eight South American countries to train employees from financial organizations and financial regulatory agencies who are responsible for enforcing AML requirements. In 2001, another program was developed and conducted for judges and prosecutors within the eight countries, and, in 2002, a long-term project was begun to establish financial intelligence units in Argentina, Chile, Ecuador, Brazil, Peru, Uruguay, and Venezuela. Egmont Group of Financial Intelligence Units In 1995, several national FIUs began working together in an informal organization known as the Egmont Group (named for the location of the first meeting, the Egmont-Arenberg Palace in Brussels). The goal of the group is to provide a forum for FIUs around the world to improve cooperation and establish the environment needed to foster trust among countries to securely share sensitive information in the fight against money laundering and the financing of terrorism. The Egmont Group comprises several organizational groups, including the Heads of FIUs. The support provided by the Egmont Group includes: • Serving as the operational arm of the international AML/CFT apparatus • Providing a platform for the secure exchange of expertise and financial intelligence to combat AML/CFT • Expanding and systematizing cooperation in the reciprocal exchange of information • Increasing the effectiveness of FIUs by offering training and promoting personnel exchanges to improve the expertise and capabilities of personnel employed by FIUs • Fostering better and secure communication among FIUs through the application of technology, such as the Egmont Secure Web (ESW) • Promoting the operational autonomy of FIUs • Promoting the establishment of FIUs in conjunction with jurisdictions with an AML/CFT program in place or in areas with a program in the early stages of development The Egmont Group has produced a set of governing documents to lay the foundation for the future work of the Egmont Group and contribute to greater international cooperation and information exchange among FIUs. These documents include The Egmont Charter and the Egmont Principles for Information Exchange and Operational Guidance for FIUs. The latter document is binding for members and includes several provisions, including General Framework and International Co-operation requirements. Examples of the provisions include: • The Egmont Group fosters the development of FIUs and information exchange. • International cooperation among FIUs should be encouraged and based upon a foundation of mutual trust. • Information-sharing arrangements must recognize and allow room for case-by-case solutions to specific problems. • FIUs should exchange information with foreign FIUs, regardless of their status (i.e., administrative, law enforcement, judicial, or other). • FIUs should use the most efficient means to cooperate. • Exchanged information should be used only for the purpose for which the information was sought or provided. Resources provided by the Egmont Group include case studies related to money laundering, terrorist financing, fraud, and other forms of financial crimes. These case studies often consist of information compiled by reviewing cases submitted by FIUs from various jurisdictions. They can be used to assist AML professionals in identifying suspicious activity and determining whether to report these activities. The Egmont Group undertook an initiative that resulted in the publication of "FIUs in Action: 100 Cases from the Egmont Group." According to the Egmont Group, this publication has provided invaluable assistance in identifying the components of money laundering cases. Several best practices from this analysis can benefit FIUs. Examples include: Disclosures of suspicious activity by financial organizations should continue to be made, even while an investigation is being conducted by an FIU, and additional information obtained by a financial organization’s own inquiries have been shown in a number of cases to be very useful for later investigations by the authorities. Beyond the analysis of the 100 cases, the report identifies six of the most frequently observed indicators of money laundering: • Large-scale cash transactions • Atypical and uneconomical fund transfers to or from a foreign jurisdiction • Unusual business activities and transactions • Large and/or rapid movements of funds • Unrealistic wealth compared with client profile • Defensive stance to questioning Egmont membership and observer organizations continue to grow because, according to the FATF Recommendations, FIUs are expected to apply for membership. The Wolfsberg Group The Wolfsberg Group is an association of global banks that aims to develop financial services, industry standards, and guidance related to Know Your Customer (KYC), anti-money laundering, and counter-terrorist financing policies. The Wolfsberg Group, which has no enforcement powers, issued the guidelines to manage its members’ own risks to help make sound decisions about clients and to protect their operations from criminal abuse. The Group first came together in 2000 at the Wolfsberg castle in Switzerland, accompanied by representatives of Transparency International, to draft antimoney laundering guidelines for private banking that, when implemented, would mark an unprecedented private-sector assault on the laundering of the proceeds of corruption. The Wolfsberg Anti-Money Laundering Principles for Private Banking was published in October2000 and have been routinely revised. These principles recommend controls for private banking that range from the basic, such as customer identification, to enhanced due diligence, such as heightened scrutiny of individuals who “have or have had positions of public trust.” The banks that released the Principles with Transparency International said that the Principles would “make it harder for corrupt people to deposit their illgotten gains in the world’s banking system.” The Principles state that banks must “endeavor to accept only those clients whose source of wealth and funds can be reasonably established to be legitimate.” They highlight the need to identify the beneficial owner of funds “for all accounts” when that person is someone other than the client and urge private bankers to perform due diligence on “money managers and similar intermediaries” to determine that the middlemen have a satisfactory due diligence process for their clients or a regulatory obligation to conduct such due diligence. The Principles recommend that “at least one person other than the private banker” should approve all new clients and accounts. The Principles list several situations that require enhanced due diligence, including activities that involve: • Politically exposed persons, such as public officials, holding or having held “senior, prominent or important public positions with substantial authority over policy, operations, or the use or allocation of government-owned resources, such as senior government officials, senior executives of government corporations, senior politicians, important political party officials, as well as their close family and close associates.” • People residing in and/or having funds from high-risk countries, including countries “identified by credible sources as having inadequate anti-money laundering standards or representing high-risk for crime and corruption.” • People involved in types of “economic or business activities or sectors known to be susceptible to money laundering.” Clients may also require greater scrutiny as a result of: • Information gained from monitoring their activities • External inquiries • Derogatory information, such as negative news reporting • Other factors that may expose the bank to reputational risk The Wolfsberg Principles say that banks should have written policies on the “identification of and follow-up on unusual or suspicious activities,” and should include a definition of what is suspicious, as well as examples of such activity. They recommend a sufficient monitoring system that uses the private banker’s knowledge of the types of activity that would be suspicious for particular clients. They also outline mechanisms that can be used to identify suspicious activity, including meetings, discussions, and in-country visits with clients and steps that should be taken when suspicious activity is detected. The Principles also addressed: • Reporting money laundering issues to management • AML training • Retention of relevant documents • Deviations from policy • Creation of an anti-money laundering department and an AML policy One of the key revisions made to the Principles related to the prohibition of the use of internal nonclient accounts (sometimes referred to as concentration accounts) to keep clients from being linked to the movement of funds on their behalf. It stated that banks should forbid the use of such internal accounts in a manner that would prevent officials from appropriately monitoring movements of client funds. The Wolfsberg Group also issued guidelines on the suppression of the financing of terrorism, outlining the roles of financial institutions in the fight against money laundering and terrorism financing. The Wolfsberg recommendations included: • Providing official lists of suspected terrorists on a globally coordinated basis by relevant authorities • Including adequate information in the lists to help institutions search customer databases efficiently • Providing prompt feedback to institutions following circulation of the official lists • Providing information on the manner, means, and methods used by terrorists • Developing government guidelines for business sectors and activities identified as high-risk for terrorism financing • Developing uniform global formats for funds transfers that assist in the detection of terrorism financing • Protecting financial institutions with safe harbor immunity to encourage them to share information and to report to authorities • Performing enhanced due diligence for “business relationships with remittance businesses, exchange houses, casas de cambio, bureaux de change, and money transfer agents” and other high-risk customers or those in high-risk sectors and activities “such as underground banking businesses or alternative remittance systems In 2002, Wolfsberg issued guidelines on anti-money laundering principles for correspondent banking that outlined steps financial institutions should take to combat money laundering and terrorism financing through correspondent banking. Correspondent accounts are established by one financial institution with another financial institution to hold deposits, make payments on its behalf, and process other transactions. The guidelines were updated in 2014 to highlight that the Principles were intended to address the risks associated with foreign correspondent relationships, not domestic. These guidelines extend to all correspondent banking relationships an institution maintains or establishes including where the correspondent banking client is an affiliate, subsidiary, or branch of that institution. Some of the more notable recommendations are as follows. Due diligence should be risk-based and on an ongoing basis, depending on the location, type of business, ownership, customer base, regulatory status, and AML controls of the correspondent banking client or business. It is recommended that the following elements be considered when conducting due diligence. • Geographic risk • Branches, subsidiaries, and affiliates of correspondent banking clients and of the institution • Ownership and management structures of the correspondent banking client • Client’s customer base and business • Client’s products and services • Client’s regulatory status and history • Client’s anti-money laundering controls • Client’s dealings with shell banks • Visits to the client’s business • Enhanced due diligence regarding the involvement of PEPs with the correspondent banking client and downstream correspondent (nested) relationships the correspondent provides • The Principles should be part of a financial institution’s larger AML program, including anti-bribery and corruption, fraud, and evasion of sanctions. The Wolfsberg Group began collaborating with the Banker’s Almanac in 2004 to develop the International Due Diligence Repository. Details in the Repository include copies of company bylaws, relevant licenses, extracts from commercial registers or certificates of incorporation, the most recent annual reports, information about shareholders with stakes of more than 5%, biographies of board members and senior management, and information about each financial institution’s AML policies and procedures. The initiative is a move toward standardizing due diligence information, which in itself provides a potential cost-saving in time spent seeking information from a variety of sources. Since its launch, the Banker’s Almanac has added further functionality to the Repository with the inclusion of an alert service that updates users with any changes to documents or status of an institution. The group released Monitoring, Screening and Searching Wolfsberg to provide further guidance on “the design, implementation, and ongoing maintenance of transaction monitoring frameworks for real-time screening, transaction monitoring, and retroactive searches.” This document discussed the need for appropriate monitoring of transactions and customers to identify potentially unusual or suspicious activity and transactions and for reporting such to competent authorities. In particular, it covered issues related to the development of risk-based processes for monitoring, screening, and searching transactions and customers. All of the group’s publications can be found online. The World Bank and the International Monetary Fund The IMF and the World Bank have supported the efforts of FATF in addressing the resistance of certain nations to joining the international battle against money laundering. Since 2001, the two organizations have required countries that benefit from their financial and structural assistance programs to have effective money laundering controls. In the joint policy paper “Enhancing Contributions to Combating Money Laundering,” the two organizations detailed the steps they would take to strengthen the global assault on money laundering. In September 2000, the IMF and World Bank started to fully integrate the battle against money laundering and other financial crimes into its surveillance exercises and programs. That month, the International Monetary and Financial Committee (IMFC), the advisors to the IMF’s board of governors, issued a communiqué that said it would: (1) “prepare a joint paper with the Bank on their respective roles in combating money laundering and financial crime, and in protecting the international financial system,” and (2) “explore incorporating work on financial abuse, particularly with respect to international efforts to fight against money laundering, into its various activities, as relevant and appropriate.” In February 2001, the IMFC, along with the IMF and World Bank, issued the background paper “Financial System Abuse, Financial Crime, and Money Laundering,” which explores how the organizations could “play…role[s] in protecting the integrity of the international financial system from abuse” through use of their influence to promote national anti-corruption programs. Since then, the IMF and World Bank have become more active in combating money laundering by: • Concentrating on money laundering over other forms of financial abuse • Helping to strengthen financial supervision and regulation in countries • More closely interacting with the Organisation for Economic Co-operation and Development and the Basel Committee on Banking Supervision • Insisting on the application of international AML standards in countries that request financial assistance In a joint meeting in April 2004, the two bodies agreed to permanently adopt their pilot program, which assesses a nation’s compliance with international AML/CFT. The program put an end to FATF’s practice of publicizing noncooperative countries and territories. The World Bank and the IMF established a collaborative framework with FATF for conducting comprehensive assessments using a single global methodology of countries’ compliance with FATF’s 40 Recommendations. The assessments are carried out as part of the Financial Sector Assessment Program and result in a Report on the Observance of Standards and Codes (ROSC). ROSCs summarize the extent to which countries observe 12 areas and associated standards for the operational work of the IMF and World Bank. The 12 areas include: accounting, auditing, AML/CFT, banking supervision, corporate governance, data dissemination, fiscal transparency, insolvency and creditor rights, insurance supervision, monetary and financial policy transparency, payments systems, and securities regulation. The ROSCs are prepared and published at the request of the member country and summarize a countries’ observance of the standards. They are used to help sharpen organizations’ policy discussions with national authorities and in the private sector, including by rating agencies, for risk-assessment purposes. Updates to the ROSCs are produced regularly, however, new reports are prepared and published every several years. In 2002, the World Bank and the IMF developed the Reference Guide to Anti- Money Laundering and Combating the Financing of Terrorism in an effort to provide practical steps for countries implementing AML/CFT regimes in accordance with international standards. A Second Edition and Supplement on Special Recommendation IX was published in 2006. The guide describes the global problem of money laundering and terrorist financing on the development agendas of individual countries and across regions. It explains the basic elements required to build an effective AML/CFT legal and institutional framework and summarizes the role of the World Bank and IMF in those efforts. The following table lists the important AML/CFT organizations and documents: Group What is It? Financial Action • Task Force on Money Laundering Basel Committee Intergovernmental body with member countries and member international organizations • Sets money laundering and terrorist financing standards • on Banking Established by the central bank governors of the G10 Supervision • Promotes sound supervisory standards worldwide European Union • A politico-economic union of member states that are located primarily in Europe • Issues AML/CFT directives regarding legislation that member states must issue to prevent their domestic financial systems being used for money laundering and terrorist financing Wolfsberg Group • Association of global banks • Aims to develop standards on money laundering controls for banks APG, CFATF, • EAG, GABAC, GIABA, GAFILAT, MENAFATF, FATF-style regional bodies that have similar form and functions to those of FATF • Provide input to FATF on standards and typologies • Informal networking group of financial intelligence MONEYVAL, ESAALMG Egmont Group units CICAD • Commission within the Organization of American States that addresses drug-related issues, including money laundering World Bank and • Work together and in conjunction with FATF to International encourage countries to have adequate AML laws and Monetary Fund to review the AML laws and procedures of FATF member countries