fbpx 50258-001: Developing Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) Approaches, Methodologies, and Controls | Asian Development Bank

Regional: Developing Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) Approaches, Methodologies, and Controls

Sovereign (Public) Project | 50258-001 Status: Active

The technical assistance (TA) will support the banking and finance sectors in developing member countries (DMCs) of the Asian Development Bank (ADB) to improve the implementation of anti-money laundering and combating the financing of terrorism (AML/CFT) regulatory measures, and strengthen the capacity of domestic banks and nonbank financial institutions (NBFIs) to comply with the requirements of the Financial Action Task Force (FATF).

It is aligned with the ADB policy on combating money laundering and the financing of terrorism, which calls on ADB to (i) assist DMCs in establishing and implementing effective legal and institutional systems to combat money laundering and the financing of terrorism, (ii) increase collaboration with other international organizations, and (iii) strengthen internal controls to safeguard ADB funds. The TA supports good governance and capacity development, which comprise one of the five drivers of change under Strategy 2020.

 
Project Name Developing Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) Approaches, Methodologies, and Controls
Project Number 50258-001
Country Regional
Bhutan
Mongolia
Philippines
Papua New Guinea
Tajikistan
Viet Nam
Project Status Active
Project Type / Modality of Assistance Technical Assistance
Source of Funding / Amount
TA 0023-REG: Developing Anti-Money Laundering and Combating the Financing of Terrorism Approaches, Methodologies, and Controls
Technical Assistance Special Fund US$ 2.00 million
TA 0023-REG: Developing Anti-Money Laundering and Combating the Financing of Terrorism Approaches, Methodologies, and Controls (Cluster TA) (Supplementary)
Technical Assistance Special Fund US$ 1.00 million
Strategic Agendas Environmentally sustainable growth
Inclusive economic growth
Regional integration
Drivers of Change Governance and capacity development
Knowledge solutions
Partnerships
Private sector development
Sector / Subsector

Finance / Banking systems and nonbank financial institutions

Gender Equity and Mainstreaming No gender elements
Description

The technical assistance (TA) will support the banking and finance sectors in developing member countries (DMCs) of the Asian Development Bank (ADB) to improve the implementation of anti-money laundering and combating the financing of terrorism (AML/CFT) regulatory measures, and strengthen the capacity of domestic banks and nonbank financial institutions (NBFIs) to comply with the requirements of the Financial Action Task Force (FATF).

It is aligned with the ADB policy on combating money laundering and the financing of terrorism, which calls on ADB to (i) assist DMCs in establishing and implementing effective legal and institutional systems to combat money laundering and the financing of terrorism, (ii) increase collaboration with other international organizations, and (iii) strengthen internal controls to safeguard ADB funds. The TA supports good governance and capacity development, which comprise one of the five drivers of change under Strategy 2020.

The TA will also support goal 16 of the Sustainable Development Goals, which aims to strengthen the rule of law and the participation of developing countries in the institutions of global governance.

Project Rationale and Linkage to Country/Regional Strategy

A broad range of economic analyses point to the conclusion that strong financial institutions such as small domestic banks and NBFIs are critical to economic growth in developing countries because these institutions allow for the concentration of capital resources from domestic savings and the efficient allocation of such resources to investment projects that generate sustained economic development. Unfortunately, money laundering impairs the development of these financial institutions, especially in developing countries, because of the risks associated with money laundering and their impact on customer confidence. The adoption of AML/CFT policies by financial intelligence units and other relevant national authorities (i.e., supervisory and regulatory agencies, including self-regulatory bodies, if applicable), as well as financial institutions (where they include adequate know-your-customer rules and the strengthening of internal controls), are intended to protect such institutions from the negative effects of money laundering and the financing of terrorism.

However, these same AML/CFT policies and requirements can also affect the prospect and ability of domestic financial institutions (DFIs), including domestic banks, to participate and compete internationally. Overly strict approaches to AML/CFT may inadvertently limit financial access, especially in jurisdictions with nascent financial systems. Many financial institutions have opted to end relationships that are assessed as high risk, unprofitable, or complex such as those involving money service businesses, foreign embassies, international charities, and correspondent banks. This practice is otherwise known as de-risking, and it seems to have been a trend since the 2008 financial crisis, aggravated by a misapplication of the AML/CFT requirements and the risk-based approach. Further, financial institutions that might risk losing access to correspondent services tend to (i) be smaller institutions that generate low payment volumes; (ii) be located in jurisdictions perceived to be very risky; (iii) not be part of an international group; or (iv) provide payment services to customers for whom an adequate risk assessment is not available, due to a lack of necessary information.

For these reasons, the TA is designed to strengthen the capacity of DFIs to comply with the FATF AML/CFT requirements by addressing the challenges and issues at both the national regulatory and operational levels, and develop a knowledge product that consolidates the resulting lessons.

Impact The legal and institutional systems to combat money laundering and the financing of terrorism are established and implemented effectively.
Project Outcome
Description of Outcome Strengthened capacity of domestic banks to comply with the AML/CFT requirements.
Progress Toward Outcome
Implementation Progress
Description of Project Outputs

The proposed R-C-CDTA will comprise three subprojects. Each subproject will focus on an output that addresses a particular key aspect of the development issue to be addressed.

Subproject A: Developing Risk Assessment Requirements and Tools. Recommendation 1 (Assessing risks and applying a risk-based approach) of the FATF Recommendations states among others that _[C]ountries should require financial institutions and designated non-financial businesses and professions (DNFBPs) to identify, assess and take action to mitigate their money laundering and terrorist financing risks._ The Interpretative Notes to the FATF Recommendations further state that domestic banks need to be required to have policies, controls and procedures that enable them to manage and mitigate effectively the risks that have been identified, and to monitor the implementation of those controls and enhance them, if needed. Relatedly, Recommendation 10 (Customer Due diligence and Record-Keeping) of the FATF Recommendations states that each country may determine how it imposes specific customer due diligence (CDD) obligations, either through law or enforceable means.

To address these risk-focused requirements of the FATF Recommendations, this subproject will support Financial Intelligence Units (FIUs) and relevant national authorities (i.e. supervisors and regulatory agencies, including self-regulatory bodies, if applicable) to develop and issue AML/CFT risk assessment requirements and tools for domestic banks, and improve the overall regulatory environment. Efforts to improve a DMC's regulatory environment also need to target national corporate registration systems and data sources that are accessed by FIs (particularly domestic banks) in complying with CDD requirements, so that these are also improved and updated. This will ensure that domestic banks access reliable and updated data, and are able to generate adequate information about their customers.

It is helpful to keep in mind that these outputs can closely link with, and complement, any prior assistance provided by ADB in some DMCs to develop or strengthen AML/CFT legal and institutional systems.

Subproject B: Supporting Domestic Banks to Identify, Assess and Address Risks

After having supported FIUs and relevant national authorities to improve the regulatory environment in the selected DMCs under subproject A, subproject B will then focus on supporting domestic banks in these selected DMCs to develop the required policies, controls and procedures to enable them to identify, manage effectively mitigate risks.

Recommendation 10 (Customer Due Diligence and Record-Keeping) of the FATF Recommendations lists the CDD measures that domestic banks need to take, and additionally states that domestic banks _should determine the extent of such measures using a risk-based approach (RBA). Relatedly, Recommendation 13 (Correspondent Banking) of the FATF Recommendations lists additional CDD measures for domestic banks that are engaged in cross-border correspondent banking and other similar relationships.

In light of the focus of FATF Recommendations 10 and 13 on CDD, this subproject will support domestic banks towards developing and implementing enhanced due diligence procedures and practices, and incorporating RBA in their respective methodologies. This subproject will also help build the capacity of domestic banks to effectively use adequate know-your customer (KYC) tools and approaches, and adapt these to any given risk scenario and, if needed, even go farther towards knowing their customers' customers (KYCC). Relatedly, support would also be needed to help domestic banks improve the way they identify the ultimate beneficial ownerships of their customers.

The number of domestic banks within the selected DMCs to be covered by this subproject will depend on the findings and results of subproject A, but as indicated earlier, the selection will also consider the following: (i) those that participate in ADB financed-activities; (ii) those that have demonstrated capacity to serve ADB's development objectives, typically relating to the provision of financial services to underserved segments, such as low income households and small business; and (iii) those that operate in countries considered by FATF to be high-risk and non-cooperative jurisdictions, or jurisdictions having strategic deficiencies.

Subproject C: Capacity Development Program

The experience gained through the engagements with the FIUs and relevant national authorities in subproject A, as well as the domestic banks in subproject B, will provide valuable insights and lessons for other FIUs, national authorities and domestic banks, including those in DMCs that will not be covered by the R-C-CDTA. For this reason, subproject C will focus on developing and rolling out a comprehensive AML/CFT capacity development program for domestic banks, leveraging on the experience gained in subprojects A and B.

The capacity development program will include a manual that will cover broad international approaches and country-specific scenarios. In this way, while similarities among domestic banks across different regions can be expected, the design of the R-C-CDTA will acknowledge the fact that each domestic bank faces unique internal and external challenges, as well as different national operating environments.

Status of Implementation Progress (Outputs, Activities, and Issues)
Geographical Location Bhutan - Nation-wide; Mongolia - Nation-wide; Papua New Guinea - Nation-wide; Philippines - Nation-wide; Tajikistan - Nation-wide; Viet Nam - Nation-wide
Summary of Environmental and Social Aspects
Environmental Aspects
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design
During Project Implementation
Business Opportunities
Consulting Services All consultants will be recruited following ADB''s Guidelines on the Use of Consultants (2013, as amended from time to time). All consultants/experts engaged under the R-C-CDTA will be from ADB member countries.
Responsible ADB Officer Jose Luis C. Syquia
Responsible ADB Department AIOD
Responsible ADB Division AIOD-DU
Executing Agencies
Asian Development Bank
6 ADB Avenue,
Mandaluyong City 1550, Philippines
Timetable
Concept Clearance 21 Aug 2016
Fact Finding -
MRM -
Approval 15 Dec 2016
Last Review Mission -
Last PDS Update 03 Jan 2017

TA 0023-REG

Financing Plan/TA Utilization Cumulative Disbursements
ADB Cofinancing Counterpart Total Date Amount
Gov Beneficiaries Project Sponsor Others
3,000,000.00 0.00 0.00 0.00 0.00 0.00 3,000,000.00 - 0.00

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Evaluation Documents See also: Independent Evaluation

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Related Publications

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Tenders

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Procurement Plan

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