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Enhancing the Asian Development Bank's Role in Combating Money Laundering and the Financing of Terrorism
I. IntroductionOver the past several years, the international community has become increasingly concerned about the growing problems of money laundering (ML) and the financing of terrorism (FT). ML and FT constitute global problems affecting both developed countries and the Asian Development Bank's (ADB) developing member countries (DMCs), and assistance in combating these financial crimes is urgently needed by many DMCs. The international community’s concern with the growing incidence of ML and FT arises from the fear that such activities could seriously jeopardize the integrity of national financial systems and hamper economic development including strategies for poverty reduction. In the context of its mandate to promote good governance, ADB was one of the first multilateral development banks to address the ML problem, directly and indirectly, through regional and country assistance programs. The Asian Development Fund Donors’ meeting in September 2000 requested ADB to prepare a policy paper proposing an even larger role in anti-money laundering (AML) for ADB. This paper proposes a policy for an enhanced role of ADB in combating ML and FT in the Asian and Pacific region to complement the international efforts already initiated. The Board of Directors discussed the Working Paper on 13 September 2002. ADB’s own recent activities in assisting its DMCs to combat ML have been undertaken within the broader context of its existing policies and strategies to facilitate poverty reduction, promote good governance and anticorruption, and strengthen national financial systems. Thus, these activities have been incorporated, as appropriate, as an integral part of ADB’s operational programs and country strategies in a limited number of DMCs that have requested assistance in their efforts to combat ML. Given that both ML and FT are typically committed through abuse of financial institutions, thereby undermining financial sector governance, and that there are some common approaches and measures to prevent, detect, and counter them, the fight against ML and FT calls for the adoption of a consolidated strategy and approach. Several international, regional, and specialized bodies, among others the Financial Action Task Force on Money Laundering (FATF), the United Nations, the International Monetary Fund (IMF), the World Bank, and FATF-style regional bodies, have in close collaboration developed a number of strategies and instruments depending on their respective mandates. In line with these initiatives, it is timely for ADB to review and strengthen its own assistance to DMCs in response to ever-increasing requests for assistance, within its mandate as an international financial institution. However, it is likely that ADB’s role will be more prominent in the AML area than in combating the financing of terrorism (CFT) for at least two reasons: First, the magnitude of the ML problem is believed to be much larger than the FT problem, at least in most of the Asian and Pacific region. Second, CFT involves more law enforcement issues that do not fall readily within the mandate or expertise of ADB. In formulating its role, ADB should be guided by a number of principles: First, it should locate and implement its AML/CFT activities within the broader context of its existing goals, policies, and strategies for assisting DMCs such as poverty reduction, strengthening financial systems, and promoting good governance and anticorruption. This will ensure that ADB’s work on AML/CFT does not compete with or override existing operational priorities or divert scarce financial and human resources. Second, ADB should not attempt to duplicate the ongoing efforts and programs of IMF, the World Bank, FATF, and the Asia/Pacific Group on Money Laundering. It should instead seek to identify additional measures that it might usefully take to complement the efforts of these other agencies, either through its lending operations or training of government officials and other forms of technical assistance. Finally, ADB’s role should also be tailored to take account of the special problems and circumstances faced by the Asian and Pacific DMCs, as highlighted by the country studies under regional technical assistance no. 5967. Notable among these problems and circumstances are lack or weakness of AML/CFT laws, weak institutional capacity, and lack of specialized and sustainable training for government officials to effectively implement and enforce AML/CFT laws. Guided by the above principles, this paper discusses the policy, which has four key elements: (i) assisting DMCs in establishing and implementing effective legal and institutional systems for AML/CFT, (ii) increasing collaboration with other international organizations and aid agencies, (iii) strengthening internal controls to safeguard ADB’s funds, and (iv) upgrading ADB’s staff capacity. This paper will also discuss the implementation of the policy and resource implications.
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