Home 
Publications Catalog Online Publications Document
Enhancing the Asian Development Bank's Role in Combating Money Laundering and the Financing of Terrorism : IV. The Policy
B. Operational Content of the Policy60. ADB has been one of the international financial institutions (IFIs) that embarked at an early stage on efforts to combat ML in its DMCs. With the events of September 11, the international community has signified a new sense of urgency to address ML and FT. In particular, the UN Security Council and FATF have called on all states to implement a series of strengthened measures to combat FT. 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.20 As noted earlier, several international, regional, and specialized bodies—among others FATF, the UN, IMF, the World Bank, and FSRBs—have in close collaboration developed a number of strategies and instruments depending on their respective mandates. 61. 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 IFI. However, it is likely that ADB’s role will be more prominent in the AML area than in 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. For this reason, IMF and the World Bank will also be less involved with the law enforcement aspects of AML/CFT. 62. ADB will now need to formulate a role for itself in the international AML/CFT efforts, building on the work it has already begun in the region. In formulating this 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 APG (such as assessments based on the new AML/CFT methodology). 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 TA. 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 RETA No. 5967. Notable among these problems and circumstances are lack of or weakness in AML/CFT laws, weak institutional capacity, and lack of specialized and sustainable training for government officials to effectively implement and enforce AML/CFT laws. 63. Guided by the above principles, Board approval is sought for the following 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.
64. The first priority is to encourage the inclusion of AML and CFT issues in the policy dialogue with DMCs, where necessary and appropriate, particularly when DMCs request ADB’s assistance in this area. In these cases, these issues should be explicitly incorporated into the country strategy and program and its update (CSP/CSPU), subregional cooperation strategy and program and its update (SCSP/SCSPU), and relevant sector and aid agency consultations. 65. The starting point for some DMCs where AML/CFT efforts are substantially delayed would be for their policy makers to seriously recognize the dangers and risks that ML/FT pose to their financial sector governance and integrity. Such recognition needs to be placed on a sound and comprehensive basis to achieve both poverty reduction and sustainable economic development. In DMCs where AML/CFT efforts have made certain progress, ADB’s assistance will be required to further strengthen the AML/CFT regime and ensure the effective implementation in close coordination with other aid agencies concerned. In any event, in identifying the appropriate scope and methods of the assistance, ADB should take into account, as feasible, assessments carried out by international and regional organizations including FATF, APG, IMF, and the World Bank; and self-assessments by DMCs. Such an approach will provide for consistency among the concerned organizations and ADB in addressing AML/CFT matters, and will also facilitate cooperation by DMCs. In the course of the country dialogue, ADB should encourage all DMCs to actively participate in international and regional forums and activities on AML/CFT, starting with regional forums such as APG. This will enable DMCs to receive technical advice and guidance from such forums.
66. With regard to provision of assistance, the work of the principal standard-setting agencies assumes that international AML and CFT efforts need to be supported by TA from aid agencies to developing countries or countries in transition. Initially, FATF member countries have provided much of the TA on a bilateral grant basis. More recently, however, the needs for TA have become greater and more urgent, thus requiring more active interventions by international organizations. In the Asian and Pacific region, such a trend has naturally increased DMCs’ expectations of ADB to play a greater role in provision of necessary assistance to them. ADB’s assistance could be funded by TA grants; project, program, and TA loans; and/or funds provided by other sources under trust fund agreements administered by ADB. The assistance could be directed, for instance, to raise awareness of the risks that the issues pose; to establish or strengthen AML/CFT legal, regulatory, and institutional frameworks; to build institutional capacity in responsible institutions; to provide for the sustainable training programs for officials dealing with AML/CFT matters; and to conduct research studies and regional conferences, workshops, and seminars. 67. In the case of assistance through loans, the principal vehicle to be used will be financial sector loans. Despite a tendency for some DMCs to prefer TA grants to loans when requesting ADB’s assistance for AML/CFT, the feasibility of the assistance through loans should be studied because of the following merits: First, loans support the provision of the AML/CFT assistance in the broader context of financial sector governance and integrity, and ensure that the assistance will be in line with ADB’s existing operational priorities. Second, the implementation period of loans is usually longer than that of TAs, which facilitates the reform efforts in the longer term. Third, loans are more feasible under the ADB’s current financial situation than TA grant funds, which are extremely tight, unless additional TA resources specifically directed toward AML/CFT activities can be secured. To accelerate DMCs’ concentrated efforts supported by political commitment, moderate use of loan covenants or tranche conditions (in the case of program loans) may be appropriate and useful, if carefully examined on a country-by-country basis. 68. The assistance through TA grants will need to be considered depending on the nature, urgency, and the priority of the request. Combinations of assistance through loans and TAs should be explored. Where common needs for assistance exist for a region or a subregion, a regional or subregional TA can be developed to provide the appropriate assistance. Which method of assistance to choose should be carefully considered, taking into account all the relevant factors, and should be discussed with the DMCs concerned.
69. As various international organizations and aid agencies work in the Asian and Pacific region, it is essential that ADB increase and strengthen its collaboration and cooperation with these organizations for at least three reasons: First, it will ensure greater consistency in strategy and approach to each DMC among all organizations. Second, it will ensure better coordination of respective assistance projects to the same DMCs, thereby avoiding duplication or conflict with other organizations. Third, it will enable ADB staff to keep fully up to date with the latest developments and strategies of these organizations and to share or exchange information on AML/CFT issues with them. To this end, it is believed that increased collaboration could best be achieved through the following measures:
70. As noted from the earlier discussion, different organizations have adopted a range of international standards and a variety of instruments–including international conventions, recommendations, guidelines, and best practices–for AML and CFT. To facilitate and guide ADB’s future operational work on AML and CFT, it would be appropriate and desirable for ADB to adopt FATF 40 and 8 and the relevant UN conventions21 and Security Council resolutions22 as the primary international AML/CFT standards to guide ADB’s operations, given the central standards-setting role of these organizations. Doing so will be in line with the decisions taken recently by IMF and the World Bank, and will ensure consistency among IFIs in their approaches and assistance to their common DMCs in this area. Similarly, it would be appropriate and desirable for ADB to adopt the comprehensive methodology for AML/CFT compliance assessment that has recently been developed by IMF, the World Bank, and FATF as a uniform tool to be used globally for this purpose.
71. APG is the FSRB for the Asian and Pacific region. It also acts as a regional coordinator of TA and training needs, and as a regional center for knowledge, information, and networking activities. As the only regional group solely devoted to AML/CFT, the role of APG is growing in significance. Though ADB has supported and collaborated with APG since its inception, it is important for ADB to strengthen this cooperation and collaboration more fully with APG in its operational work. A good start has already been made in this direction under RETA No. 5967, where the APG Secretariat served as the implementing agency. Among measures that can be considered for future effective cooperation is an increase in RETAs for DMCs with the involvement of the APG Secretariat. This will indirectly strengthen APG’s institutional and operational capacity in conducting its major programs including workshops, best practice guides, training, and research activities. It will also be useful for ADB to encourage more of its DMCs to become members of APG or strengthen their support to APG.
72. In practical terms, the most useful way to facilitate and enhance cooperation and collaboration with other relevant international organizations and multilateral/bilateral aid agencies is to attend the meetings and workshops of those organizations and agencies on a more regular basis. This would include, for example, the FATF plenary meetings and typology workshops. This will enable ADB staff to keep up with the latest developments as well as maintain working contacts with other multilateral and bilateral agencies. ADB staff’s participation in FATF’s technical working groups, such as those on the review of FATF 40 or terrorist financing, would be similarly productive to help ensure that ADB’s views and concerns relating to its own DMCs and the region are properly taken into account in FATF’s discussions, in addition to the views of APG.23 ADB should also remain active in the recently established international and regional frameworks for aid coordination for TA and training needs, initiated by the World Bank and IMF.
73. Though ADB is not a deposit-taking institution and its treasury operations are consequently less directly exposed to ML/FT activity than those of commercial financial institutions, the potential for indirect exposure may exist. For this reason, ADB should continue to strive toward international best practice standards in its treasury operations. These standards are driven by the objectives of transparency, control, and oversight. 74. At the same time, it is important that ADB continue to monitor and strengthen each procurement and consultant selection as well as rules, procedures, and systems for borrowers and other external parties concerned in ADB’s projects to ensure that ADB funds from loans and TAs are not misused for the purposes of ML/FT through fraudulent procurement, contracting, and accounting. Through project management and audit, ADB should also continue to strengthen borrowers’ financial accounting and auditing arrangements in relation to ADB’s project procurement and administration to preventmisuse of ADB funds. It is also important that ADB continue to strengthen the system to screen sources of commercial cofinancing operations.
75. ML and FT issues are somewhat specialized and distinct from the other professional disciplines that ADB staff normally handle. It is clear that an enhanced ADB role in AML/CFT will call for some upgrading and strengthening of ADB staff’s capacity and expertise to handle issues and respond swiftly and effectively to DMCs’ requests for assistance.24 In addition to staff who have already been involved in AML/CFT work,25 a greater number of staff, especially those of regional departments who will actually deal with the policy dialogue with DMCs and processing of projects for assistance, need to be more familiar with the subject. It is, therefore, essential that the staff (particularly those dedicated to handling financial sector work and ML/FT matters) receive adequate training to enable them to address the issues effectively. A manual will be prepared and seminars will be conducted for the purposes of the staff training. The staff training will be developed and conducted by the Office of the General Counsel (OGC), Regional and Sustainable Development Department (RSDD), and Budget, Personnel and Management Systems Department (BPMSD), with assistance of external experts as staff consultants. It is also necessary for relevant staff to participate in appropriate external training programs. ____________________
|
© 2009 Asian Development Bank Privacy | Terms of Use |
 Top of page |
Back