IMF and the Fight Against Money Laundering and the Financing of Terrorism

July 14, 2021

Money laundering and terrorist financing can threaten a country’s economic stability.  As such, over recent years, the IMF has become increasingly active in supporting and promoting the anti-money laundering and counter-terrorism financing efforts of our member countries. It has now become part of the Fund’s core work—from analysis and policy advice, to assessing the health and integrity of financial sectors, to providing financial assistance when needed, to helping countries build institutions and increase operational effectiveness.

Money laundering is the processing of assets generated by criminal activity to obscure the link between the funds and their illegal origins. Terrorism financing raises money to support terrorist activities. While these two phenomena differ in many ways, they often exploit the same vulnerabilities in financial systems that allow for an inappropriate level of anonymity and opacity in carrying out transactions.

In 2000, the IMF responded to calls from the international community to expand its work on anti-money laundering (AML). After the tragic events of September 11, 2001, the IMF intensified its AML activities and extended them to include combating the financing of terrorism (CFT). In 2009, the IMF launched a donor-supported trust fund to finance AML/CFT capacity development in its member countries. In 2018, the IMF’s Executive Board reviewed – as part of its five year review cycle of the policy- the Fund’s AML/CFT strategy and gave strategic directions for the work ahead.

A threat to economic and financial stability

The IMF is especially concerned about the possible consequences of money laundering, terrorist financing (TF), proliferation financing (the provision of funds or financial services for the acquisition of nuclear, chemical or biological weapons), and related crimes which undermine the integrity and stability of the financial sector and the broader economy.

These crimes, as well as those underlying crimes that generate money laundering activity can threaten the stability of a country’s financial sector and a country’s external stability more generally.  This, in turn, can affect law and order, good governance, regulatory effectiveness, foreign investments and international capital flows.

Money laundering and terrorism financing activity in one country can have serious cross-border and even global adverse effects. Jurisdictions with weak or ineffective controls are especially attractive for money launderers and financiers of terrorism. These criminals exploit the complexity of the global financial system, the speed at which money can traverse borders, as well as differences between national laws to carry out their concealment objectives

International standards guide effective AML/CFT regimes

The Financial Action Task Force on Money Laundering (FATF), a 39-member inter-governmental body established by the 1989 G7 Summit in Paris, has primary responsibility for developing the worldwide standards for AML/CFT. It works in close cooperation with other key international organizations, including the IMF, the World Bank, the United Nations, and FATF-style regional bodies (FSRBs).

To help national governments set up effective AML/CFT regimes, the FATF issued a list of recommendations that set out a universally applicable framework of measures covering the criminal justice system, the financial sector, certain non-financial businesses and professions, transparency of legal persons and arrangements, and mechanisms of international cooperation.

The IMF’s role in AML/CFT efforts

Over the past 20 years, the IMF has helped shape AML/CFT/CPF policies internationally, and within its members’ national frameworks. Staff work has included more than 70 AML/CFT assessments, involvements through Article IV consultations, Financial Sector Assessment Programs (FSAPs), and inputs into the design and implementation of financial integrity-related measures in Fund-supported programs, as well as many capacity development activities and research projects.

The IMF staff has been particularly active in providing financial integrity advice in the context of surveillance, evaluating countries compliance with the international AML/CFT standard, and in developing programs to help them address shortcomings. The IMF also analyzes global and national AML/CFT regimes and how they interact with issues such as virtual currencies, financial technology (Fintech) trends, Islamic finance, costs of and mitigating strategies for corruption, illicit financial flows and the withdrawal of correspondent banking relationships.

In line with a growing recognition of the importance of financial integrity issues for the IMF, the AML/CFT program has evolved over the years.

In 2004, the Executive Board agreed to make AML/CFT assessments and capacity development a regular part of IMF work.

In 2011, the Board discussed a report on the evolution of the AML/CFT program over the previous five years. Directors supported the mandatory coverage of financial integrity issues in specific circumstances. In the context of Article IV consultations, staff is required to discuss AML/CFT issues in cases where money laundering, terrorism financing, and related crimes (such as corruption or tax crimes) are serious enough to threaten domestic stability, balance of payments stability, or the effective operation of the international monetary system.

 

In the 2014 review of the Fund’s AML/CFT strategy, the Board encouraged staff to continue efforts to integrate financial integrity issues into its surveillance and in the context of Fund-supported programs, when financial integrity issues are critical to financing assurances or to achieve program objectives. The Board also decided that AML/CFT should continue to be addressed in all FSAPs but on a more flexible basis.

 

The Executive Board in 2018 took note of several emerging areas in the AML/CFT space, including the integrity risks relating to Fintech and the de-risking phenomenon affecting correspondent banking relationships. It also noted increasing demand for financial integrity advice and capacity development. Going forward, staff will lead a minimum of one to two assessments per year.

 

In 2020, the Executive Board addressed the issue of the participation of staff in AML/CFT assessments carried out by other assessor bodies.  This was viewed as valuable as it also lent Fund expertise to these assessor bodies.

The Fund’s activities in the AML/CFT arena are funded from both internal and external sources. In 2009, the IMF launched a donor-supported trust fundthe first in a series of Topical Trust Funds, now referred to as Thematic Funds (AMLTF) to finance capacity development in AML/CFT that complemented the IMFs existing financing accounts.

The AMLTF leverages staff expertise and experience to deliver tailored AML/CFT capacity development. The AMLTFs first phase ended in April 2014, directly benefitting 35 countries together with 3 regional projects. The current phase will place particular focus on AML/CFT systems that have been affected by the pandemic as well as effective delivery of capacity development, virtually.