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p. 8 of 19 BACK | NEXT I. Executive Summary II. The Policy Context III. International Efforts to Combat Money Laundering and the Financing of Terrorism A. Financial Action Task Force on Money Laundering and Affiliated Bodies B. The United Nations C. The Bretton Woods Institutions D. ADB’s Activities in AML IV. The Policy V. Implementing the Policy VI. Recommendation

Enhancing the Asian Development Bank's Role in Combating Money Laundering and the Financing of Terrorism : III. International Efforts to Combat Money Laundering and the Financing of Terrorism

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A. Financial Action Task Force on Money Laundering and Affiliated Bodies

1. Financial Action Task Force on Money Laundering

29. The main international agency responsible for setting AML/CFT standards is FATF, an intergovernmental task force established by the Group of Seven (G-7) in 1989. FATF now comprises 29 member jurisdictions, 2 regional organizations, and 2 observer countries. ADB is one of the 15 observer international/regional organizations to the FATF. In 1990, FATF first published its Forty Recommendations (FATF 40) to give member and nonmember countries and financial institutions detailed guidelines and recommendations on how to deter ML. Appendix 2 has the full text of FATF 40. Notable among these recommendations are those calling on countries to criminalize ML; to punish both individuals and corporate entities; to waive bank secrecy laws to permit financial institutions to undertake suspicious transaction reporting (STR) and to protect those reporting from civil or criminal liability; to freeze, seize, and confiscate criminal proceeds; to exercise stronger prudential supervision; and to cooperate fully in international law enforcement efforts to combat ML; and those calling on financial institutions to strictly enforce customer identification KYC rules; to pay special attention to large, complex, or unusual transactions; to submit STRs; and to maintain transaction records. FATF 40 was revised in 1996 and is currently undergoing a major review.

30. FATF also carries out an annual review of ML trends and techniques. Another important activity of FATF is monitoring the implementation of AML measures in member countries. Based on FATF 40, FATF requested countries to carry out annual selfassessments and periodically conducted their own mutual evaluations to determine theextent to which such countries are observing FATF 40. FATF has also established 25 Criteria for Defining Non-Cooperative Countries and Territories (NCCTs), which seek to identify detrimental rules and practices that impede international cooperation in the fight against ML. It is noted that, of the 11 countries or territories currently classified as NCCTs worldwide, the following 5 NCCTs are ADB's DMCs: Cook Islands, Indonesia, Myanmar, Nauru, and Philippines. In December 2001, additional counter-measures were applied by FATF members to Nauru.

31. At an extraordinary plenary meeting in Washington, DC, on 29-30 October 2001, FATF adopted eight Special Recommendations to counter FT (FATF 8). The full text is in Appendix 3. FATF 8 called on all countries to ratify the 1999 UN Convention for the Suppression of the Financing of Terrorism; to implement relevant UN resolutions, especially Security Council Resolution 1373 to criminalize the financing of terrorism, terrorist acts, and terrorist organizations; to freeze and confiscate the assets of terrorists and terrorist organizations; to require financial institutions to submit STRs related to terrorism and to closely monitor wire transfers by obtaining more detailed originator information and scrutinize them for suspicious activity; to regulate alternative remittance systems; to review the adequacy of their countries’ laws to prevent abuse by nonprofit organizations such as charities; and, finally, to cooperate fully in international law enforcement efforts to combat FT. The two sets of Recommendations (FATF 40 and 8) form a comprehensive basis for effective AML/CFT action.

32. In October 2002, FATF decided to suspend the NCCT review process for any new countries (although it will continue monitoring for the countries currently classified as NCCTs) in light of the adoption of a new AML/CFT methodology for future assessments and the launch of a 12-month pilot program by IMF and the World Bank. After having endorsed the FATF 40 and 8, IMF and the World Bank have worked with FATF to develop a common methodology to assess the countries in the world in compliance with the FATF Recommendations. The adoption of the new comprehensive AML/CFT assessment methodology by the October 2002 Plenary Meeting will form the basis for increased collaboration among IMF, the World Bank, and FATF. These bodies and FATF-style regional bodies (FSRBs) which will adopt the common methodology, will use it to assess countries’ compliance with the FATF 40 and 8.

2. FATF-Style Regional Bodies

33. The work of FATF has been supported by a number of FSRBs in Africa, Asia, the Caribbean, Europe, and South America. The relevant body for the region covered by ADB is APG, which was established in 1997.⁶ APG is the only Asia/Pacific regional group solely devoted to AML and CFT. The purpose of APG is to facilitate the adoption, implementation, and enforcement of internationally accepted standards for combating ML and FT. The work includes assisting jurisdictions in the region to enact laws criminalizing the laundering of the proceeds of crime and FT, mutual legal assistance, confiscation, forfeiture, and extradition. It also includes guidance in setting up systems for reporting and investigating suspicious transactions and help in establishing financial intelligence units. ADB closely cooperates with and supports the work of APG, and has participated as observer in its meetings.

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