Last month, the Financial Action Task Force (FATF) convened in Paris to further develop and implement global controls against financial crime. 

Since the establishment of the FATF more than two decades ago, it has been recognized as the international standard setting body on anti-money laundering (AML) and combating the financing of terrorism (CFT). With a belief that a transparent financial system deters corruption, enhances rule of law, supports economic development and contributes to a stable economy, the FATF has established standards that assist countries in prescribing specific safeguards covering legal, supervisory, and enforcement requirements.  

The FATF is unique among the scores of global governance bodies, in that it has largely been successful in pushing countries forward to comply with its standards through a combination of a peer review process, and strong multilateral action (the most severe of which is FATF blacklisting).   More than 180 countries have endorsed the standards set out by the FATF, but the practical success of the FATF lies within the mechanism it has developed to enforce and ensure implementation of the FATF standards by its members and those countries that have made political commitments to do so.

The Office of Terrorist Financing and Financial Crimes (TFFC) in the Treasury Department, which marked its 10th anniversary earlier this month, leads the U.S. interagency delegation to the FATF, actively advancing the FATF’s global efforts in combating money laundering, terrorist financing and other illicit financing threats that pose a risk to the integrity of the international financial system.  In practical terms, the importance of the FATF lies in its objective to create a level financial playing field that prevents illicit financiers from exploiting a jurisdiction with lax AML/CFT measures, thereby undermining the efforts of other jurisdictions that have strong controls. 

Consequently, the role of the FATF through its 36 members and network of associate members is to promote the implementation of the standards and when jurisdictions fail to take adequate action, to prompt for strong compliance through a system that includes publicly identifying the countries and their AML/CFT weaknesses.

The G20 has consistently stressed the importance of the FATF and reinforced this support in the latest G20 statement which called for ongoing support for the FATF to publicly identify and monitor jurisdictions that pose a significant risk of money laundering and terrorist financing.  The FATF currently has identified more than 40 countries around the world for strategic AML/CFT deficiencies. As a result many countries have taken steps in improving their AML/CFT regimes.  Ghana and Venezuela are the most recent examples of countries that have engaged closely with the FATF, taking the necessary measures to address their technical AML/CFT deficiencies.  Consequently, during the February Plenary meeting, the FATF decided unanimously to remove them from the FATF listing process.

There were additional positive results with the FATF recommending that Bolivia and four countries in the Asia Pacific region, Brunei Darussalam, Thailand, the Philippines and Sri Lanka, exit the review process by the next FATF meeting in June 2013. These countries largely addressed their AML/CFT strategic deficiencies by passing major legislation to significantly improve their legal frameworks.   Moreover, the FATF welcomed the important progress of Turkey for enacting long awaited CFT legislation that addresses a number of shortcomings.  The FATF will continue to systematically review high-risk jurisdictions that pose a threat to the international financial system and work with them to reach an acceptable level of compliance.

Another key outcome from the February Plenary was agreement on a methodology that sets out a roadmap for determining both a country’s technical compliance with the FATF Recommendations and how effectively the country is implementing the standards in practice.  The methodology is the basis for the peer review process, which is fundamental to the success of the FATF’s ability to monitor countries and their level of compliance.  For those with a low level of compliance with the FATF standards, the FATF has procedures to monitor reforms.

The U.S. has been a strong supporter of the FATF looking beyond technical compliance of the standards in the peer review process to the effectiveness of implementation.  Effective implementation requires supervision of financial institutions, and both civil and criminal enforcement of AML/CFT laws.  The U.S. enforcement of its AML/CFT laws has resulted in foreign as well as domestic financial institutions being the subject of legal action.  At the February Plenary the FATF acknowledged the challenges of financial institution AML/CFT compliance and the need for countries to improve implementation of their enforcement efforts, which will be FATF’s focus in the next round of peer reviews.

With the noteworthy outcomes from the February FATF Plenary and the successful completion of the comprehensive FATF methodology, the FATF is poised for the next phase of its work in conducting assessments (beginning in 2014 and including the U.S. in 2015).  To this end, the FATF is in a stronger position to remain at the forefront in the international effort to combat the misuse of the international financial system and to build upon a process that has been successful in achieving concrete institutional changes in a number of monitored countries.   

http://www.treasury.gov/connect/blog/Pages/Financial-Action-Task-Force-(FATF)-Evolving-in-its-Effort-to-Combat-Money-Laundering-and-Terrorist-Financing.aspx

 The Basel AML Index is a composite country risk ranking developed by the Basel Institute on Governance and its expert team from the International Centre for Asset Recovery (ICAR). The purpose of the Basel AML Index is to analyze countries risk regarding money laundering / terrorism financing, and other related factors such as corruption and political risk.

The Basel AML Index uses a composite methodology, aggregating 15 variables from third party sources that deal with anti-money laundering (AML) / counter terrorist financing (CTF) regulations, financial standards, transparency & disclosure, and political risks.

http://index.baselgovernance.org/Index.html#introduction

The resulting overall score is based on a weighting scheme through a qualitative expert assessment. In short the Basel AML Index is:

•an overview of over 140 countries according to their risk level in money laundering / terrorist financing;
•a composite index based on public sources and third party assessments;
•an innovative research-based risk ranking to be updated annually

In addition, the Basel Institute offers an Expert Edition, which contains additional, more detailed features for an in-house risk assessment for financial institutions and other stakeholders. In particular, the Expert Edition provides for complete customization. Specific sub-indicators may be selected to produce a tailored analysis. For instance, compliance and due-diligence experts can select any variables relevant for their own specific risk assessment. See for more details here: Brochure Expert Edition

If you are interested in purchasing the Expert Edition or obtaining a demo account for the Expert Edition please contact:index@baselgovernance.org
 
Who is it for?

The Basel AML Index is targeted at any audience that is interested in AML/CTF and its related risk factors including:

•Financial institutions (banks, compliance experts);
•Policy makers;
•AML/CTF Regulators
•Financial Intelligence Units (FIUs); and
•Academics and Researchers.

Please refer to the Expert Edition for professional use: Brochure Expert Edition 

What does the Basel AML Index measure?

The Basel AML Index is based on external public sources including indices from the World Bank, the World Economic Forum and Financial Action Task Force (FATF). A core component and focus of the Basel AML Index is the use of the FATF Mutual Evaluation Reports whose recommendations are weighted to reflect countries compliance and implementation of AML/CTF regulations. Additionally, related aspects such as banking secrecy, corruption, financial regulations, judicial strengths and civil rights are factored in as well.

The Basel Institute on Governance does not generate its own data but relies on data from trusted third party sources employing aggregation techniques to generate own results or scores from those component sources. As a result the Basel AML Index does not measure the actual existence of money laundering activity in a country; instead it provides a basis for assessing a risk level, meaning the likelihood of money laundering activities originating from a given country based on its adherence to AML/CTF standards and other risk categories. It is indeed important to note that money laundering and terrorist financing cannot be quantitatively measured since most of it occurs, due to its illegal nature, in absolute secrecy. Countries with missing or insufficient data have been excluded in this ranking, which is why some key countries that are considered as known money laundering / tax haven jurisdictions are not covered. The Expert Edition includes additional countries (e.g. Afghanistan) based on the available data to suggest a risk score.

More information on the methodology underlying the Basel AML Index can be found in the methodology section.
 
 Why create an AML Index and what are its benefits?

Most publicly available country risk assessments and governance rankings do not focus on money laundering / terrorist financing risks. Some efforts have been made to address tax haven or offshore jurisdictions. However, there is still a lack of a particular focus on AML/CTF risk assessments and their indicators. Moreover, creating an AML/CTF county risk assessment is challenging because there are no accepted best practices for identifying and rating countries according to their money laundering/terrorist financing risks.

In addition, international standard setters emphasize the importance of country risk assessment in the area of AML/CTF. The Financial Action Task Force (FATF) recommends for example that advanced Anti-Money Laundering (AML) systems should be following the principles of a Risk Based Approach (RBA). The RBA guidance documents of both the Wolfsberg Group (March 2006) and FATF (June 2007) state that country or geographic risk is one of the most commonly used risk criteria for an effective RBA to counter money laundering and terrorism financing, because money launderers tend to seek out countries in which there is a low risk of detection due to weak or ineffective anti-money laundering regulations.

To address this need the Basel AML Index created a country risk assessment focusing on AML/CTF. An independent and academic approach for conducting a risk assessment in money laundering/terrorist financing is new. Employing this novel approach, the Basel AML Index attempts to fill this gap and provide a research-based AML country risk ranking to capture the complex global nature of money laundering/terrorist financing risks.

At the same time, the Basel AML Index offers with its Expert Edition a practical solution to financial institutions in their compliance area that are in need for a standardized and independent risk assessment. See for more details here: Brochure Expert Edition
 
http://index.baselgovernance.org/Index.html#introduction

Economic TimesReserve Bank probe into alleged money laundering case delayedFinancial ExpressTags: Money Laundering | ICICI Bank | HDFC Bank | Axis Bank. After promising to complete the final investigation report on allegations of money laundering by ICICI Bank, HDFC Bank and Axis Bank by March 31, there's no sign of the report from the RBI.Implement guidelines to curb money-laundering: Devendra Raghav, Director …Economic TimesMoney-Laundering: Loopholes in the lawFrontlineWilliam Fry | Anti-Money Laundering Update – Credit UnionsLinex Legal (registration) (press release)all 4 news articles
Source: Money Laundering

..IN AN industry survey last year Cyprus was tipped to grow in importance as an offshore financial centre (OFC) by 2017, catching up with Bermuda and snapping at Jersey’s heels. Now many wonder if it has any future as a tax haven.

The island’s Russocentric banking model is badly fractured. Large depositors will doubtless look to move what’s left of their money as soon as they can. It is hard to imagine banks attracting new foreign customers. This is bad news not only for lenders, but also for the dozens of Cypriot law firms and service providers that cater to the post-Soviet market.

Less clear is the likely impact on Cyprus’s other offshore speciality: holding companies used as tax-avoidance conduits. Many Russians and east Europeans have used these for the “tax-efficient” shuffling of shareholdings and profits, making creative use of Cyprus’s network of tax treaties and its non-taxation of dividend payments or capital gains (except on property). These vehicles are also used for “round-tripping”: moving funds abroad and then back home disguised as foreign investment that is eligible for tax breaks. It remains to be seen if the reputational damage from the banking crisis affects the holding-company business. The head of a large incorporation firm expects some clients to redomicile to Malta or somewhere offering the same benefits as Cyprus (EU access, tax treaties aplenty).

Nicholas Shaxson, a tax campaigner, argues that Cyprus is a classic example of the damage wrought when a small jurisdiction is captured by the finance industry: he is hopeful that the debacle will undermine other OFCs. But Jason Sharman, of Griffith University in Australia, points out that tax havens generally benefit from turmoil.

Greeks, for example, have become great customers for OFCs; presumably Cypriots will, too. Other places are already rolling out the welcome mat for Russian users of services in Cyprus. Banks in Switzerland, Singapore, Dubai, Latvia and Andorra are reportedly trying to poach clients, some even flying in representatives to woo them in person. “If there’s instability in one holiday destination, people don’t stop going on holiday. They just choose another island. It’s the same with banking,” says Mr Sharman.

Still, the Cypriot saga has highlighted broader problems. One is a disconnect between anti-money-laundering (AML) controls on paper and in practice.

Cyprus scores better than Germany in an index produced by the Basel Institute on Governance (see chart), but that is almost certainly because it turns a blind eye to informal practices that circumvent the law. The Financial Action Task Force, which polices global AML standards, has started to pay as much attention to enforcement as to what’s on the statute books.

Large countries may also use Cyprus as an excuse to accelerate recent moves, led by America, to force tax havens to exchange client information with other countries’ tax authorities on an automatic basis.

Andrew Morriss, an offshore expert at the University of Alabama, thinks this could lead to a welter of rules that raise costs and reduce transactions in OFCs. If he is right, Russians will not be alone in bemoaning the island’s implosion.

http://www.economist.com/news/finance-and-economics/21574509-effects-cyprus-other-tax-havens-haven-sent

Cyprus has brought in controls to raise the 5.8bn euros needed to qualify for the bailoutJersey banks are being warned about approaches from Cypriot firms following a 10bn euro bailout deal.

Jersey’s Financial Services Commission (JFSC) has contacted its members to warn deposits from Cyprus were “considered high risk”.

However a JFSC spokesman said it did not suggest all business from Cyprus was automatically bad but firms needed to filter with common sense.

Banks opened in Cyprus on Thursday for the first time in nearly two weeks.

Cyprus needs to raise 5.8bn euros to qualify for the bailout deal with the EU and IMF.

It has become the first eurozone member country to bring in capital controls to prevent a torrent of money leaving the island and credit institutions collapsing.

‘Different situation’

The JFSC spokesman said: “The commission is aware of Jersey banks having received enquiries from Cypriot firms in respect of opening bank accounts.

“But has not heard of anything of such a critical nature as to warrant a dialogue with government and does not anticipate that becoming the case.”

Senator Philip Ozouf, Jersey’s Treasury Minister, said Cyprus was a fellow offshore finance centre but was in very different situation to Jersey.

He said: “[Cyprus] has borrowed and it now cannot refinance that debt and it has got ongoing difficulties.

“Cyprus has got over 100% of the value of its economy in debt, [Jersey] has the opposite.”

http://www.bbc.co.uk/news/world-europe-jersey-21976508

ZIZ LiveMoney Laundering Still a Sore IssueCaribarena AntiguaMoney Laundering Antigua St. John's – Antigua and Barbuda has been reported as still susceptible to money laundering despite recent improvements, according to a 2013 International Narcotics Control Strategy Report on money laundering and financial …Heads of Financial Intelligence Units meet in AntiguaZIZ Liveall 3 news articles
Source: Money Laundering

Economic TimesImplement guidelines to curb money-laundering: Devendra Raghav, Director …Economic TimesRecent media reports outlining the scale of money-laundering activity have jolted the financial services industry. Many observers believe that organised crime is of sufficient scale and power not only to influence financial institutions but also to …Money-Laundering: Loopholes in the lawFrontlineall 2 news articles
Source: Money Laundering

ABC7Chicago.comEvansville official indicted on money laundering chargesPost-TribuneEVANSVILLE (AP) — Federal prosecutors say an Evansville public official has been indicted on charges he laundered drug money for a cartel that smuggled marijuana from Mexico into Indiana. The Evansville Courier & Press reports Evansville …Evansville Redevelopment Commission Member Charged With Money LaunderingTristatehomepage.comInd. official indicted on money laundering chargesSan Francisco ChronicleEvansville Redevelopment Commissioner accused of laundering money for drug …14 News WFIE Evansvilleall 6 news articles
Source: Money Laundering