Assessment Methodology and Assessment Experience [17]

Box 8.3 Weaknesses in AML/CFT Regimes: Results of Pilot Program Assessments

The assessments undertaken during the pilot program using the 2002 Methodology identified numerous shortcomings in national AML-CFT regimes. This box lists specific types of shortcomings that led to rat­ings of “materially noncompliant” or “noncompliant” in a fairly high percentage of countries assessed. The shortcomings identified were encountered across a wide range of countries and appeared with varying fre­quency. Some shortcomings are concentrated in a few countries where compliance is generally weak. Others represent exceptions in regimes where compliance is otherwise strong.

The list below provides an indication of some of the types of deficiencies that needed to be corrected to achieve compliance with the earlier FATF stan­dard; it does not cover topics such as the financial intelligence function and enhanced due diligence that were not yet included in the FATF standard at the time of the pilot program.

Main Weaknesses Identified in AML-CFT
Assessments

• Poor assistance provided to other countries’ investigations into financing terrorism

• Poor attention given to transactions with higher risk countries

• Poor detection and analysis of unusual large or otherwise suspicious transactions

• No criminalization of the financing of terrorism and of terrorist organizations

• Inadequate systems to report suspicious transac­tions linked to terrorism

• Inadequate AML programs in supervised banks, financial institutions, or intermediaries and inadequate authority to cooperate with judicial and law enforcement

• Inadequate guidelines for detecting suspicious transactions

• Inadequate measures to freeze and confiscate ter­rorist assets

• No obligation to take reasonable measures to obtain information about customer identity

• Lack of procedures for mutual assistance (for the production of records, the search of persons, and the seizure and obtaining of evidence for money­laundering investigations and prosecution) in criminal matters

• Inadequate internal policies, procedures, con­trols, audit, and training programs

Source: IMF and World Bank (2004, annex II).

• No requirement to report promptly to the Financial Intelligence Units if institutions sus­pect that funds stem from a criminal activity

• Poor international exchange of information relating to suspicious transactions as well as to persons or corporations involved

The scope of the weaknesses listed above are fur­ther explained in the following list:

• General Legal Framework (FTAF 1-3)—In most cases, secrecy laws hindered the effective investigation and prosecution of money-laun­dering offenses by imposing restrictions on access to customer information or its exchange, whether domestically or internationally.

• Customer identification and record keeping (FATF 10-13)—Deficiencies include not pro­hibiting anonymous or fictitious accounts, unclear or vague regulations on official docu­ments to be used for identifications, exemptions from identification requirements, and insuf­ficient coverage of recordkeeping requirements.

• Increased diligence of financial institutions (FATF 14-19)—Deficiencies ranged from an absence of clear laws requiring the reporting of suspicious transactions to overly restrictive thresholds for determining suspicion; in some cases, procedures and channels for reporting suspicious transactions were unclear.

• Implementation and role of regulatory and other administrative authorities (FATF 26-29)—In many countries (in the pilot), supervisors and regulators cannot effectively cooperate with each other domestically because of legal impedi­ments to share relevant information or absence of legal gateways; also, authorities have not established adequate guidelines to assist finan­cial institutions in detecting suspicious pat­terns of behavior by customers, partly reflecting deficiencies in the role of financial intelligence units.

• Criminalization of the financing of terrorism and associated money-laundering(SRII)—In almost a third of the countries, the financing of terrorism was not criminalized in any manner or, even if criminalized, was not made a predi­cate offense for money laundering.

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