56. In assuming any role in the overall international efforts to combat ML
and FT, it is
important for ADB to identify and then address the unique challenges, needs,
and
circumstances faced by its DMCs in the Asian and Pacific region. By viewing
the ML/FT
problem in its regional context, ADB will be better able to determine what appropriate
complementary measures it might usefully take in addition to those adopted at
the global
level, to address the specific needs of its DMCs.
57. The typology exercises carried out by FATF and APG have highlighted a number
of the prominent features of the ML problem in the Asian and Pacific region.
First,
among the Asian DMCs, the primary source of ML is domestic criminal activity,
while in
the Pacific DMCs, ML appears to derive largely from external criminal activity.
Second,
informal financing mechanisms are quite prevalent in Asia. Third, the use of
cash figures
prominently in business and financial transactions; and cash smuggling across
borders
is believed to be significant.
58. In addition, the findings of RETA 5967 provide a useful perspective on
the critical
needs and problems faced by DMCs in combating ML. The nine countries presented
a
very interesting regional sample or cross-section of DMCs for analysis and,
as such,
enabled ADB to better understand the ML problem in its regional context and
also to
identify its own future role in assisting DMCs in this area.
59. The key findings of the RETA include the following:
(i) There is considerable variance among the AML regimes in these countries.
Major differences include limitations in the number of predicateoffenses,
threshold amounts for STR, bank secrecy laws, little or no regulatory oversight
over offshore entities, and insufficiency of sanctions. The main risk flowing
from these wide variances in AML laws is that they enable criminals to engage
in regulatory arbitrage (i.e., to choose to launder their funds through more
lax jurisdictions) and also hinder international cooperation and mutual assistance
efforts.
(ii) Most AML laws focus on financial institutions, thereby leaving a major
loophole that would effectively permit several other types of entities or
persons (e.g., alternative remittance systems; international business corporations,
shell companies, and trusts; real estate agencies; automobile dealers; jewelers;
casinos; and “gatekeepers” such as accountants, financial advisers,
and lawyers) to continue ML activities.
(iii) AML laws are a necessary but not a sufficient condition for the establishment
of a truly effective AML regime. Institutional capability in AML agencies
to effectively implement AML laws is equally important, but in most of the
countries surveyed this was still inadequate. In the small Pacific DMCs, the
problem is particularly acute, and cries out for innovative solutions. In
all countries, the need for additional TA to beef up organizational arrangements
and develop systems and procedures is critical.
(iv) Many of the AML agencies are “operating in the dark” in this
relatively new and highly sophisticated area of AML, with little or no technical
expertise at this time, particularly in the Pacific DMCs. To fill this skills
gap, it is essential that TA be directed towards providing hands-on training
in financial analysis, financial intelligence, and investigation techniques.
The conduct of in-country training programs and secondment of local staff
to established foreign AML agencies or FIUs would be highly desirable.
(v) International cooperation and mutual assistance arrangements in the region
are generally very weak. Given the transnational characteristics of ML, international
cooperation and mutual assistance should be substantially strengthened to
facilitate the investigation and prosecution of ML.
(vi) Between the two groups of countries, priority should be given to addressing
the critical needs of the Pacific countries, which, by dint of their small
size, location, relatively weaker legal frameworks and institutional capacity,
and larger offshore financial sector, have the most urgent need for TA.
(vii) Social and cultural factors and business traditions in Asian and Pacific
societies have also posed obstacles to enforcing customer identification requirements
and STR. This is a problem that is best addressed through the holding of public
workshops and public awareness programs to highlight the dangers posed by
ML to the economy in general and to financial institutions in particular.
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