IMF Executive Board Reviews Efforts in Anti-Money Laundering and Combating the Financing of Terrorism

Public Information Notice (PIN) No. 11/74
June 27, 2011

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.

On June 1, 2011, the Executive Board of the International Monetary Fund (IMF) discussed the staff paper on Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT): Report on the Review of the Effectiveness of the Program.

Background

Over the past 10 years the Fund has contributed significantly to the efforts of the international community to combat money laundering and terrorist financing. The Fund’s AML/CFT program encompasses (i) assessments of countries’ compliance with the AML/CFT standard established by the Financial Action Task Force (FATF); (ii) the examination of AML/CFT issues in the context of Article IV surveillance; (iii) the provision of technical assistance; and (iv) research and policy development.

The AML/CFT program has experienced a number of successes and changes over the past years, particularly in the areas of assessments and technical assistance.

AML/CFT assessments are integrated into the joint IMF/World Bank financial sector assessment program (FSAP) and forms part of a broader effort within the international community to combat money laundering and terrorist financing. Since 2004, the Fund has conducted 34 assessments; these form part of a body of 186 assessments conducted by 11 assessor bodies, including the FATF and the World Bank, based on a comprehensive, uniform methodology. Many of the assessor bodies have benefitted from the Fund’s assistance in strengthening the quality of their assessments.

The Fund has provided AML/CFT technical assistance on topics such as financial sector regulatory issues, law reform, good governance and institution building. Since 2008 the Fund’s technical assistance program is almost completely financed with external resources. The central pillar of this new approach was the establishment of the AML/CFT multi-donor trust fund which provides the Fund with approximately USD 25 million for the FY2010-2014 period. Donor states that support the trust fund are Canada, France, Japan, Korea, Kuwait, Luxembourg, the Netherlands, Norway, Qatar, Saudi Arabia, Switzerland, and the United Kingdom. The establishment and governance of the trust fund helps ensure that the AML/CFT technical assistance program focuses on areas where the Fund’s comparative advantage results in specific, value-adding contributions to global AML/CFT efforts.

Five years since the last review, the current review of the Fund’s AML/CFT program pointed to a way forward in several areas. This includes moving towards a targeted, risk-focused approach to AML/CFT assessments, revisiting the mandatory coverage of AML/CFT in all FSAP assessments, and providing clearer guidance on the circumstances where AML/CFT should be examined in the context of the Fund’s bilateral surveillance or financial sector work.

Executive Board Assessment

Executive Directors welcomed the opportunity to discuss the effectiveness of the AML/CFT program. They noted that the Fund’s work has significantly contributed to the international community’s response to money laundering and the financing of terrorism.

Directors recognized that AML/CFT assessments are an important part of the ROSC and FSAP programs and rely on close cooperation and coordination with other key players, notably the FATF and the World Bank. Directors noted that, although useful, the comprehensiveness of the FATF standards sets a high benchmark. Compliance remains low, assessments are resource intensive, and country specific issues may not receive full attention. In this context, a few Directors called for further evidence of the effectiveness of AML/CFT assessments.

Against this background, Directors saw merit in exploring ways to strengthen AML/CFT assessments, including the possibility of conducting targeted, risk-based assessments. While Directors acknowledged the potential benefits of a risk-based approach, many Directors preferred to keep options open pending FATF discussions of these issues next year.

Directors agreed that, under a framework for risk-based assessments, the first AML/CFT assessment for a member would be comprehensive while subsequent assessments would focus on those areas that present the greatest risk of money laundering and/or terrorist financing taking place without being detected or sanctioned. This approach would produce better targeted and more focused assessments.

Directors agreed that a shift to targeted and risk based AML/CFT ROSCs would need to be agreed with the standard setter and other stakeholders. In particular, the methodology for conducting such assessments and criteria for the selection of issues to be assessed with respect to specific countries need to be developed in cooperation with the FATF and the FATF-style regional bodies along with other stakeholders. Directors agreed that staff, in continued close cooperation with the World Bank, should raise these issues with FATF and report to the Board within two years. To the extent that there is a sufficient consensus within the international community to move to a risk-based approach, Fund staff should also make a specific proposal on how to move forward, including an analysis of the associated resource implications.

Directors recognized that the FSAP framework has provided an effective mechanism for addressing AML/CFT issues on a consistent basis. Most Directors agreed to maintain the mandatory link of AML/CFT assessments with every FSAP, although a number of Directors expressed the view that, going forward, the incorporation of AML/CFT into an FSAP should be determined on a case-by-case basis, as is the case for other standards and codes and if justified by the level of money laundering and terrorist financing risks.

Directors continued to support Fund collaboration with the FATF, including its International Cooperation Review Group (ICRG) process towards non-cooperative jurisdictions (NCJs). Consistent with guidance provided in the recent Board review of the Standards and Codes Initiative, Directors agreed that staff should continue to participate in the ICRG, play a “good offices” role, and provide relevant information on member countries under review with the consent of the relevant members, while refraining from participating in those aspects of the process that are coercive in nature. Directors noted that staff participation in such cases should not be seen as an endorsement of possible public statements on NCJs.

The majority of the Board endorsed the approach and considerations outlined in the paper for the coverage of AML/CFT issues and their related predicate crimes in the context of modular financial stability assessments under the FSAP and bilateral surveillance. However, a number of other Directors expressed the view that the framework proposed by staff, although useful, required further elaboration before it could be applied for the purposes of financial stability assessments and bilateral surveillance under Article IV. In addition, Directors broadly supported the continued inclusion of AML/CFT issues in Article IV discussions on a voluntary basis, while a number of Directors favored a more consistent treatment across members of these issues in bilateral surveillance.

Directors welcomed the strategic delivery of the Fund’s AML/CFT technical assistance program, which is now almost exclusively funded by external resources.

Directors noted that the next review of the AML/CFT program would be expected to be completed within the next five years.



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