Working Together to Fight Money Laundering & Terrorist Financing
IMF News, June 22, 2017
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Bibliographic details
- Authors: Christine Lagarde
- Published: June 22, 2017
Opening remarks and context
- Speaker: Christine Lagarde, IMF Managing Director.
- Event: FATF Plenary Meeting, Valencia, June 22, 2017.
- Core message: Intensify the fight against corruption, tax evasion, and the financing of terrorism, and support countries at risk of losing vital correspondent banking relationships.
- Partnership: IMF and FATF have forged a close relationship over nearly two decades; AML/CFT work has been part of the Fund’s core work for some 20 years.
Three policy priorities
- Fighting corruption and tax evasion
- Systemic corruption can seriously undermine a country’s ability to deliver sustainable and inclusive growth.
- Large-scale tax evasion typically means lower government revenue, higher public debt, and less investment in health, education, and other public services; it increases economic inequality and can trigger popular discontent and economic instability.
- The AML/CFT framework can help break this vicious economic cycle.
- Case study: Greece
- Strengthening of the AML framework facilitated the seizure of hundreds of millions of euros in proceeds from tax crimes.
- Central bank strengthening led to a sharp increase in reporting to the financial intelligence unit (FIU).
- The FIU froze more than €200 million in assets between 2012 and 2014.
- The FIU referred more than 400 cases to the prosecutor’s office and more than 2,500 cases to the tax authorities.
- Transparency example: The Panama Papers underscored the need for greater transparency—an area where the FATF standard is helpful.
- Combating the financing of terrorism
- Goal: Choke off financial flows—both large and small—that enable terrorists.
- IMF involvement: 16 years of technical assistance and capacity building in CFT efforts.
- Example: Sudan
- In 2014, IMF called on Sudan to strengthen its CFT framework.
- IMF worked with the government to develop targeted financial sanctions consistent with the FATF standard.
- IMF is developing practical guidance for members on implementing such sanctions, which should be available by 2019.
- Role of fintech
- Fintech is a double-edged sword: it can be used to promote and fund terrorism (including via anonymity in virtual currencies) but can also help identify terrorist financial flows, including very small transactions.
- Machine learning and other artificial intelligence tools can help identify patterns of activity that would otherwise be difficult to detect.
- Distributed ledger technology (underpinning virtual currencies and other applications) is less vulnerable to a single point of failure and could prove resilient to cyberattacks because the ledger exists in multiple copies.
- IMF has published a paper providing a framework for assessing the impact of technological innovation within the financial sector.[1]
- IMF commends FATF for addressing technology opportunities and risks, including through roundtables with the private sector.
- Maintaining correspondent banking relationships
- Importance: Correspondent banking relationships keep countries connected to the global financial system and are especially important for small countries in Africa, the Caribbean, Central Asia, and the Pacific.
- Surveys show high concern among member countries about loss of correspondent banking services.[2]
- Multi-stakeholder issue: Involves regulators, the financial industry, and affected countries.
- FATF actions: Clarified regulatory expectations under the FATF standard, including customer due diligence requirements, to reduce indiscriminate withdrawal of correspondent banking.
- Greater regulatory certainty increases likelihood global banks maintain correspondent banking business, supporting economic and financial stability in affected countries.
- IMF contributions and examples:
- Convened local banks, global banks, and other stakeholders to discuss solutions (e.g., a Caribbean workshop focused on improving small banks’ capacity to manage risks with regional development banks and enhancing communication between local and correspondent banks).
- Helped smaller member countries build capacity: worked with Costa Rica, Peru, and Uruguay to create national AML/CFT strategies.
- Helped Ukraine, Mongolia and Qatar strengthen governance and capacity of their FIUs.
- Provided technical assistance on AML/CFT to 120 countries.
- IMF assistance was instrumental for Myanmar, Nepal, and Sudan to exit FATF monitoring and reconnect to the global financial system.
- Policy papers referenced: IMF Policy Paper: “Recent Trends in Correspondent Banking Relationships: Further Considerations”, April 2017.[3]
Analytical work and tools
- IMF’s activities span analysis and policy advice, assessing the health and integrity of financial sectors, providing financial assistance when needed, and helping countries build institutions and increase operational effectiveness.
- Recent IMF Staff Discussion Note: “Fintech and Financial Services: Initial Considerations”, June 2017.[1]
- Support for the revised FATF standard: IMF supports the risk-based approach and the emphasis on effectiveness under the revised FATF standard and looks forward to targeted follow-up assessments focusing on countries’ main risks.
Conclusion and call to action
- Key challenges: Corruption, tax evasion, the financing of terrorism, and financial exclusion require direct, coordinated action.
- Final admonition: “Level with events” — tell the unvarnished truth and address these issues head-on.
- Collective objective: By standing together and being candid about risks, countries can promote financial integrity and inclusive growth for the benefit of all.
IMF press release: Working Together to Fight Money Laundering & Terrorist Financing — Christine Lagarde, FATF Plenary Meeting, Valencia, June 22, 2017.