Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT)
The IMF and the Fight Against Money Laundering and the Financing of Terrorism, A Factsheet
IMF Advances Efforts to Combat Money Laundering and Terrorist Finance, August 8, 2002
More on Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT)
Intensified Work on Anti-Money Laundering and
Combating the Financing of Terrorism (AML/CFT)
Progress Report on Responses to the AML/CFT Questionnaire
Prepared by the Monetary and Exchange Affairs Department and Legal Departments
(In consultation with other Departments)
September 10, 2002
1. As part of the Fund's intensified involvement in anti-money laundering work and combating the financing of terrorism (AML/CFT), the Executive Board approved in November 2001 the distribution over time to all members of a questionnaire on relevant aspects of their AML/CFT systems in the context of Article IV consultations. This paper reports on the finalization of that questionnaire, its distribution, and an analysis of the responses received to date.
2. The next section describes the questionnaire and explains its design. The third section provides information on its distribution to an initial batch of countries and the response rate. Following sections summarize the analysis of the responses received to date, and the treatment of AML/CFT issues in the context of Article IV consultations. The last section summarizes experience with the questionnaire and considers its future use.
3. The development and distribution of a limited AML/CFT questionnaire was suggested in SM/01/328 of November 5, 2001, " Intensified Fund Involvement in Anti-Money Laundering Work and Combating the Financing of Terrorism," which also contained a preliminary draft of possible questions. It was emphasized in the document that the questionnaire would serve to provide a broad overview of the current status of efforts to improve the application of financial regulatory principles in the areas of AML/CFT and related legal and institutional issues. Completion would be voluntary, but the questionnaire would eventually be circulated to all members; circulating the questionnaire over time was preferred on logistical grounds and to accord with the cycle of Article IV consultations.
4. As stated in the summing-up of the Executive Board meeting (BUFF/01/176, November 14, 2001), Directors supported "circulating to all Fund members over time in the context of Article IV consultations a voluntary questionnaire (based on the expanded AML methodology). This exercise should be seen as a complement and not as a substitute to FSAPs and OFC assessments, and should inform the Article IV discussions and help set priorities for technical assistance. The results of the exercise could, with the agreement of the member, be made available to the Board." A number of Executive Directors made explicit suggestions on the coverage of questionnaire.
5. The questionnaire was developed on the basis of the Executive Board discussion and the draft Bank-Fund AML/CFT methodology document as it was at that time. 1 The questionnaire was specifically designed so as to limit the burden on national authorities of preparing responses, primarily by limiting the number of questions and requesting responses in the form of copies of existing legislation or regulations; responses could also take the form of responses to questionnaires from the Financial Action Task Force on Money Laundering (FATF) or FATF-style regional bodies.
6. The finalized questionnaire (see attachment) comprises 21 questions on primary and secondary AML/CFT legislation, the institutions involved in AML/CFT efforts, and major prudential supervisory requirements in this area, such as customer due diligence and the establishment of systems for internal control, record keeping, and reporting of unusual transactions. The first eight questions form the core of the questionnaire and are intended to allow the identification of the main elements of a country's AML/CFT system. Copies of relevant legislation and regulations are requested. The remaining questions go into some issues in greater detail. 2 The questionnaire is accompanied by a cover letter and a preamble, which reiterate that the questionnaire is voluntary and will be distributed to all members over time in the context of Article IV consultation discussions. A short glossary is attached to the questionnaire in order to help in understanding the questions, some of which include technical terms.
7. As anticipated at the time of the Board discussion, the questionnaire began to be employed in early 2002. In consultation with area departments, countries were selected to receive the questionnaire relatively early in order to achieve a representation distribution by geographical location and stage of economic development, and in the light of the schedule of Article IV consultations. Subsequently, the questionnaire has been sent out to countries in advance of Article IV consultation missions. The questionnaire was generally not sent to countries that had or would soon participate in a Financial Sector Assessment Program (FSAP) or an Offshore Financial Center (OFC) assessment that would cover AML/CFT issues in greater depth using the new methodology. Questionnaires are still being sent out to countries whose Article IV consultations are approaching.
8. Responses began to be received in February, with most arriving in March. The flow of responses has been steady since then, and 49 had been received by September 10. 3 The sample of respondents represents all geographical areas and levels of development. There are currently about 15 questionnaires outstanding, and responses continue to be received.
9. Many countries responded in some detail: almost 60 percent of respondents addressed all questions, and about the same proportion provided copies of some or all relevant legislation and regulations. Some countries responded with very detailed answers and comprehensive collections of legislation—which may in itself be a sign of the relative importance attached to AML/CFT issues. Three countries responded with copies of responses to other FATF or other questionnaires. No country explicitly declined to respond. Responses were generally transmitted by the country's central bank or Ministry of Finance.
10. Staff from the Legal and Monetary and Exchange Affairs Departments have begun analyzing the responses received to date. This analysis starts with the organization of the information contained in each response into a common format so as to facilitate the identification of the main elements of a country's AML/CFT system, and comparisons across countries. This summary includes a list of any issues in need of clarification (for example, when it is not clear to which financial institutions a regulation applies), and other points for discussion (for example, on the main elements of any planned legislation, or whether the authorities seek technical assistance on some subject). The analysis is then provided to area departments to be available to inform their discussions of AML/CFT issues in the context of Article IV consultation missions.
11. For the purposes of this report, staff have attempted to identify some general characteristics of the structure of AML/CFT systems as they are reflected in the answers received. Since the questionnaire deliberately concentrated on legislation, regulations and institutions, the generalizations that can be made concern factual matters in these areas. It was not intended or feasible in the context of the questionnaire to address questions concerning the implementation or enforcement of these provisions.
12. The analysis is complicated by differences in the comprehensiveness of the responses, and the difficulty of judging their thoroughness. Gaps in responses arise not only when a question is not answered, but also when an answer is not complete; the latter are more difficult to identify. One possibility is that a gap in an answer indicates that provisions are lacking in the area covered by the respective question, but it could alternately indicate that the institution responding is unaware of provisions that exist. Even when an answer is provided, it may omit information on other relevant provisions that strengthen or contradict the provisions that are mentioned. Furthermore, the sample is limited in size. In addition, the responses were prepared and received in the course of more than six months, during which time many countries have been making efforts to refine their AML/CFT systems. Therefore, for example, the legislation that early respondents mentioned was in preparation might by now be enacted.
13. Nonetheless, the questionnaire responses do contain some information from which broad comparisons may be drawn and general characterizations may be extracted. Where sufficiently informative responses were available, the approach adopted was to categorize the major elements of each country's AML/CFT system into three levels: relatively extensively developed, but perhaps with some weaknesses; available but with clear material weaknesses or gaps; or inadequately developed. Thus, for example, most responses allowed one to say whether the country had an AML law with most of the standard components; whether AML is addressed in some legislation but in a disjointed and incomplete fashion; or whether AML legislation is absent or very rudimentary. 4 The categorized responses can then be compiled. Since the number of responses differs from question to question, and recently received responses have not yet all been analyzed in detail, it is usually more meaningful to consider the proportions of available responses that fall into different categories, rather than absolute numbers. 5
14. On this basis, the following generalizations may be noted:
15. Staff have begun to discuss AML/CFT issues in the context of Article IV consultation missions. The results of these discussions have been reflected in several staff papers, typically in a paragraph indicating the authorities' main instruments for combating money laundering and terrorist financing; the country's relationship with FATF and other international bodies, where relevant; any recent or planned initiatives in this area; and whether the country has responded to the questionnaire. 7
16. The questionnaire responses and staff analysis of them seem to have informed these discussions. Many area department missions have relied on the analysis to anchor their discussions of AML issues, and to identify discussion partners. A few countries used the occasion of the Article IV consultation to provide further elaboration and explanation of their questionnaire responses.
17. The AML/CFT questionnaire has provided a means to obtain relatively quickly a general overview of many countries' legislative, regulatory, and institutional frameworks in this area, and some common characteristics. From the responses available so far, it appears that in many countries the AML/CFT framework is fairly well developed, and in others a framework exists which can be built upon, while extensive work is still required in a small but significant share of countries. CFT provisions seem relatively weak in many responding countries. Many countries have recently strengthened their AML/CFT frameworks, or are planning to do so. This recent activity may be a sign that countries are devoting increasing attention to the issue, but also perhaps that many countries need to concentrate on making new legislation and institutions operational. Relatively common weaknesses seem to include the coverage of NFIs; conducting "due diligence" on clients that goes beyond establishing identity; and the development of provisions and mechanisms for international cooperation in this field. Technical assistance, from the Fund or others, should perhaps concentrate on these areas and making AML/CFT frameworks operational.
18. The overview has important limitations. The coverage of the questionnaire was kept deliberately contained, so issues of effectiveness and implementation are not addressed. By the nature of the questionnaire process, the responses are uneven in thoroughness, and may be biased towards giving a favorable impression of countries' AML/CFT systems. It is difficult to identify what is omitted, cross-check information, or obtain additional information where an elaboration is needed.
19. The questionnaire has relatively significant resource costs as well as benefits. For the Fund, these costs include those incurred in many cases in translating materials, in compiling and analyzing the responses, and in the follow-up by the Article IV consultation mission. The resource cost for the Fund is offset by the value of the overview itself, and the value of having available a collection of information from numerous countries, for example, on AML/CFT legislation and the identity of relevant agencies. This information may be of use in Article IV consultation discussions; the preparation of technical assistance missions, including assessment missions; and determining where there may be major gaps in the international AML/CFT system. The net costs for the responding countries of preparing often extensive responses may be important. Many of these countries have had to respond to other questionnaires, notably from FATF and regional FATF-style bodies and some have expressed concerns that they are suffering from "questionnaire fatigue."
Cover Letter for the AML/CFT Questionnaire
INTERNATIONAL MONETARY FUND
As you are aware, money laundering and the financing of terrorism are issues that potentially affect all countries, and the integrity and stability of the international financial system. These abuses can be combated most effectively when all countries contribute to the international efforts now under way. The Fund plays a facilitating role in these efforts within its mandate and expertise. In these circumstances, the Fund's Executive Board has recently decided on an action plan to intensify the Fund's involvement in anti-money laundering and combating the financing of terrorism (AML/CFT); this action plan was endorsed by the International Monetary and Financial Committee of the Board of Governors of the Fund at their meeting in Ottawa in November 2001. One element of the action plan is the circulation over time to all members, in the context of the Article IV consultation discussions, of a questionnaire on the current status of their efforts to combat money laundering and the financing of terrorism.
As part of the implementation of this decision, we are sending the attached questionnaire. We would be grateful for your consideration of it and would value your response, preferably by ...
This questionnaire is designed to gather information on the laws, regulations, institutions and policies in place to deter money laundering and terrorist financing, primarily in the context of financial sector supervision. Your response to the first eight questions would be especially valuable. Your response to the supplementary questions, which go into issues in more detail and are more concerned with the implementation of your legal framework, would also be very much appreciated.
The questionnaire is not meant to be exhaustive, nor does it cover law enforcement and individual cases. If you have recently provided information on your AML/CFT measures to another international organization or body, such as the Counter-Terrorism Committee of the United Nations established under Security Council Resolution 1373, your response to that organization could be used in completing parts of this questionnaire.
The answers to the questionnaire may prove useful in discussing your efforts in these areas with Fund staff in the context of the forthcoming Article IV consultation mission. Answering the questionnaire may also provide you with an occasion to reflect on your AML/CFT framework, and to identify how it could be strengthened and what technical assistance might be useful. In addition, the responses from different countries will play a role in building up a global picture of the international system to combat money laundering and terrorist financing.
We would like to emphasize that completion of the questionnaire is entirely voluntary. With your agreement, a summary of your response to the questionnaire may be provided to the Fund's Board as part of the Article IV consultation documentation. Should you for any reason decide not to respond, the Board would be notified accordingly together with any reasons for your decision that you may wish to provide.
INTERNATIONAL MONETARY FUND
Questionnaire on Anti-Money Laundering and Combating
the Financing of
The following questionnaire is designed to gather information on the laws, regulations institutions and policies in place to deter money laundering and terrorist financing, primarily in the context of financial sector supervision. The questionnaire concentrates on the overall legal framework for AML/CFT, the allocation of responsibilities among the government institutions involved, the role of financial sector supervisory agencies, and the relevant requirements placed on banks and other financial sector institutions and service providers. The financial sector institutions covered include the mainstream regulated sector (licensed banks, insurance companies, securities brokers/dealers). Other formal and informal institutions and intermediaries that play an important role in your financial system (e.g., exchange bureaus, fund transfer agencies, international business corporations, etc.) should also be covered; you may wish to explain the coverage of your response, and other issues you wish to raise, in the "Remarks" section. Attached to the questionnaire is a glossary of terms used.
In general, responses to the questions should provide an overview of your AML/CFT mechanisms and measures; detailed issues might be addressed in subsequent correspondence and meetings, especially during the Article IV consultation discussions. Many of the questions, especially in the core section of the questionnaire, ask for information on laws, regulations and guidelines that address money laundering and the financing of terrorism. It would be greatly appreciated if copies of these laws and other rules could be provided. The questionnaire focuses on the areas in which the Fund has a mandate, as determined by the Fund's Board of Directors and the IMFC; it does not address law enforcement issues. 8
In completing the questionnaire, it may be useful to obtain information from a number of agencies, such as Ministries responsible for implementation of the AML/CFT framework (notably the Justice Ministry or equivalent), the supervisory agencies for different segments of the financial sector, and the financial intelligence unit, if one exists. If you have completed a self-assessment or mutual evaluation in cooperation with the Financial Action Task Force on Money Laundering (FATF) or FATF-style regional body within the last twelve months, that assessment or evaluation might be provided as a response to some parts of the questionnaire. It may also be convenient to make use of any report you may have made to the United Nations in response to Security Council Resolution 1373 of September 28, 2001.
Completion of the questionnaire is voluntary. If you prefer not to answer some or all of the questionnaire, you may wish to provide an explanation in the concluding "Remarks" section.
The following explanations of the terms used in the AML/CFT questionnaire reflect common usage and should not be regarded as legal or otherwise formal definitions.
Financial institutions: Institutions whose principal business activity includes the undertaking of financial transactions, and/or the holding of financial assets and liabilities. Typical financial institutions are commercial and other banks, other deposit taking institutions, insurance companies, securities dealers/brokers, and mutual funds (see also "Other intermediaries" below). These institutions are generally subject to regulation and supervision by the national authorities.
Financial Intelligence Unit (FIU): A government agency or institution designed to receive (and as permitted request), investigate, analyze, and disseminate to the competent authorities disclosures of financial and related information (i) concerning suspected proceeds of crime, or (ii) required by national legislation or regulation. The financial intelligence generated can typically be used to uncover both fraud against or by financial institutions, and crimes that use the financial system as an instrument, including money laundering and the financing of crime. Some FIUs provide information to be used in prosecutions; conduct investigations; set guidance with transaction reporting rules; or report to the competent authorities information on crimes that are not predicate offenses to money laundering under national law (e.g., tax evasion).
Financial sector supervisor: An agency responsible for regulating and supervising, through on- and off-site means, part or all of the financial sector. In some countries there may be several financial sector supervisors responsible for different parts of the sector.
Financing of terrorism: Processing or participating in the processing of property from any source (perhaps legitimately acquired) to be used to finance terrorist activity that has or will be committed.
Industry groups and associations: Associations or organized groups of institutions or professionals covering all or part of the financial sector.
Money laundering: Processing or participating in the processing of property known or reasonably suspected of being the proceeds of specified offenses so as to disguise their illegal origin.
Other intermediaries: Institutions other than financial institutions that intermediate funds, perform transactions, undertake investments on behalf of clients, or advise on the management and investment of funds. "Other intermediaries" may include for example attorneys, accountants, trustees, money exchange and transfer services, company service providers, and notaries.
Predicate offense: Specified offenses under money laundering and related laws that generate the proceeds that are to be laundered. Typical predicate offenses are drug trafficking, extortion, and bank robbery.
Terrorism: According to the 1999 International Convention for the Suppression of the Financing of Terrorism, which was adopted by the U.N. General Assembly, terrorism consists either of an offense within the scope of one of the treaties listed in an annex to the Convention (e.g., highjacking of aircraft, taking of hostages, etc.), or "any other act intended to cause death of serious bodily injury to a civilian, or to any other person not taking an active part in the hostilities in a situation of armed conflict, when the purpose of such act, by its nature or context, is to intimidate a population, or to compel a government or an international organization to do or to abstain from doing any act."
Unusual or suspicious transactions: Transactions with no apparent economic or visibly lawful purpose. Typically such transactions cannot be explained in commercial terms, deviate from conventional business practices or habitual patterns, or are undertaken in a manner that might facilitate obscuring the origin of funds and the identities of the parties involved. Law, regulations, or guidelines may specify what constitutes an usual or suspicious transaction. An unusual or suspicious transaction might involve dealing in large volume of cash, a sudden increase in inflows or outflows from an account (especially with an unusual counter party), or a refusal to reveal the beneficiary.
1 See SM/12/40, February 8, 2002, "Fund/Bank Methodology for Assessing Legal, Institutional and Supervisory Aspects of Anti-Money Laundering and Combating the Financing of Terrorism."
2 For example, question 7 in the core section requests that the respondent identify legislation, regulations or guidelines that have been issued on the recognition and reporting of unusual transactions, and requests a copy of the relevant documents. The supplementary question 17 asks what information must be provided in a suspicious transaction report; question 18 asks whether all cash transactions over a threshold must be reported; and question 19 asks whether financial institutions are prohibited from informing clients when information relating to them is being reported to the competent authority.
3 The responding countries as of that date were Angola, Armenia, Australia, Bahrain, Barbados, Belize, Benin, Brazil, Burkina Faso, Chile, China, Colombia, Croatia, the Czech Republic, El Salvador, Estonia, France, Fiji, Grenada, Guatemala, Haiti, Iceland, Iran, Israel, Italy, Jamaica, Malaysia, Mauritius, Mexico, Moldova, Myanmar, the Netherlands, Oman, Pakistan, Rwanda, Singapore, Slovenia, St. Vincent and the Grenadines, Suriname, Swaziland, Tajikistan, Thailand, Togo, Trinidad and Tobago, Tunisia, the U.S.A., Venezuela, Yemen, and FR Yugoslavia.
4 This simplification is necessary, but comes at the cost of obscuring finer distinctions. For example, one country might have good regulations on retaining records on customer identity, but provisions on retaining transaction records might be weaker, while in another country the relative strengths might be reversed.
5 The term "available responses" will be used to denote the set of received responses to relevant questions that have been analyzed to date. Since some questions were not answered by many respondents, the number of available responses on certain issues is 20 or less. The text indicates the issues where available responses are especially scarce.
6 Further information on the ratification of international treaties is available from the relevant organization. The U.N., for example has a system for tracking ratification of its conventions.
7 Among issued staff reports, see for example SM/02/254 on Australia; SM/02/153 on Bahrain; EBS/02/119 on Benin; SM/02/84 on Burkina Faso; SM/02/215 on the Czech Republic; SM/02/230 on Croatia; SM/02/186 on Estonia; SM/02/201 on El Salvador; SM/02/158 on Iceland; SM/02/125 on Mauritius; SM/02/260 on Mexico; EBS/02/122 on Rwanda; EBS/02/128 on Thailand; EBS/02/74 on Togo; SM/02/147 on Tunisia; SM/02/200 on the U.S.A.; SM/02/262 on Venezuela; and EBS/02/130 on Yemen.
8 The questionnaire
does, however, include an assessment of the adequacy of the legal and
institutional framework for combating money laundering and the financing