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Speech by FATF President Paul Vlaanderen at the ESAAMLG 9th Council of Ministers Meeting, Maseru, Lesotho, 21 August 2009
Thanks and recognition
Mr. Prime Minister, Madame Speaker of the Parliament of Lesotho, Ministers, guests and colleagues: good morning.
Introductory comments
Over the past decades I had the pleasure several times to visit different parts of Africa, including several member nations of ESAAMLG, but this is the first time for me to visit Lesotho. Thank you for inviting me!
I am honoured to be here to celebrate ESAAMLG’s 10th anniversary. As you may know this is the 20th year of existence for the FATF: so in fact we have two celebrations! ESAAMLG has grown in size and experience. So did the FATF-family; the international community fighting money laundering and terrorist financing has now grown to a staggering 180 jurisdictions around the world.
I am grateful for having had the opportunity to participate in the meeting of the Council of Ministers yesterday and I think several important decisions were taken for the future of ESAAMLG. These decisions have brought the status of associate membership of FATF much closer! I sincerely hope to be able to facilitate that objective so that it can be achieved in June of next year. Let’s address any remaining obstacles between now and then, without compromising our common principles & procedures.
The importance of the work carried out by ESAAMLG cannot be stressed enough. Much has been achieved since its MOU was signed in 2002. Today ESAAMLG plays a key role in transmitting the FATF message in your region and extending the reach of AML/CFT standards. I am impressed by the output you have been able to generate in terms of mutual evaluations, as well as by the depth of knowledge among the ESAAMLG delegations.
Allow me to congratulate you – the political leaders in this region - for the accomplishments so far. Your personal presence in the Council meeting is a proof of your countries’ commitment to the process. At the same time I have to call for your continued attention and support that is needed for the fight against money laundering and terrorist financing. Let me therefore say a few words this morning about the importance of this fight, so relevant to this part of the world as well.
I will also share with you some views on FATF’s present priorities. I do this in the full understanding that ESAAMLG member countries have many pressing priorities and often very limited resources. My objective is to illustrate that fighting illicit financial activities is a credible goal, and therefore it can and should be part of a development agenda.
Fight against ML and TF in Low Capacity Countries
Money laundering and terrorist financing undermine national financial systems. Unreliable sources of investment capital like illegitimate enterprises or financial assets enhance business risks. And increased risks raise barriers to economic activity and development. An example; money laundering destabilizes national economies by a growing demand for cash, adding to the volatility of interest and exchange rates.
I am sure that among the many challenges that you face as ministers is the positioning of your financial sector in the global payments network. Among your goals may be the fight against corruption in the financial sector and the improvement of the investment climate for potential investors, not to mention the global economic crisis! At the same time you may wish to increase access to world financial markets for your economy.
In other words, being part of the world financial family is likely among your many objectives. I dare to speculate on this because this objective is common to many countries in the world. Consequently, it is in your, and our, interest to work hard to conform to international codes that aim to comb abuse of the global financial network. Countries with weak enforcement of AML/CFT controls damage their reputations in international financial markets, and thus are less effective in attracting international capital flows, including notably foreign direct investment.
But there is more; the supply of financial services to the citizens of developing countries is also a necessary part of any economic plan. Therefore, the challenge of “financial inclusion” in ESAAMLG countries seems to be a key one. The objective with financial inclusion should be that individual clients, particularly low-income clients must be able to access those financial services that are appropriate to their needs. These services are to be provided by registered financial institutions and are thus part of the regular financial sector of a country.
I do believe that the pursuit of financial inclusion and the pursuit of an effective AML/CFT regime are complementary; they are by no means conflicting financial sector policy objectives. Without a sufficient degree of financial inclusion, a country’s AML/CFT system will safeguard the integrity of only a part of its financial system – the formally registered part – leaving the informal and unregistered components vulnerable to abuse. Measures that ensure that more clients use formal financial services therefore enlarges the legitimate financial sector. A robust financial sector, including effective AML/CFT controls, are important ingredients for aspiring members of the global financial community.
FATF and ESAAMLG provide together for the standards and the monitoring system for effective AML/CFT controls. Implementing the FATF standards challenges the capacity of all countries, regardless of their level of economic development. However, it is clear that Low Capacity Countries or LCC’s share characteristics that constrain their capacity to implement AML/CFT measures. The FATF has examined how to reinforce the mutual evaluation process for countries with severe capacity constraints; the objective is more rapid and sustainable progress on the implementation of the standards.
In February last year, FATF took an important step in adopting its first policy towards low capacity countries. The so-called ‘FATF Guidance on LCCs’ provides principles which are relevant throughout the process of implementing the FATF standards, including strategic planning and the mutual evaluation process. This week ESAAMLG has taken a very important step in adopting a comprehensive and useful implementation monitoring process that responds to your countries’ particular challenges and characteristics. I congratulate you on this as it represents a major step forward; prioritisation and sequencing the implementation of the international standards are crucial.
There is one consideration that should not be overlooked when discussing the application of the FATF standards in the ESAAMLG region. The 40 plus 9 FATF Recommendations were designed with some degree of flexibility to allow developed and developing economies to implement them in a context-sensitive manner. However, the last few years show that developing countries have not always used this flexibility and simply fashioned their AML/CFT frameworks on the models of developed countries.
Obviously, countries have the responsibility to protect the integrity of their financial system. At the same time, those same countries have a degree of flexibility in how they meet this obligation. I am pleased to hear that ESAAMLG encourages its member countries to allocate resources efficiently when drawing their AML/CFT implementation plans, taking into account available risk-analyses. I look forward to seeing actual outcomes and achievements in the future.
Priorities of the Dutch Presidency
At the last FATF meeting I presented the priorities of the incoming Presidency. I will take a few minutes to highlight three of them:
• The FATF initiative related to the global financial crisis
• Recent work on International Co-operation
• Preparations for the FATF fourth round of mutual evaluations.
1. The FATF initiative related to the global financial crisis
The global financial and economic crisis has affected most of the countries in the world, undermined financial markets, with direct consequences on societies and the world’s economy at large. The current financial and economic crisis presents specific new challenges and opportunities to the FATF.
In February 2009, the FATF launched an initiative to evaluate the impact of the global financial and economic crisis on AML/CFT.
The G20 Leaders asked the FATF in April to ‘’revise and reinvigorate the review process for assessing compliance by jurisdictions with AML/CFT standards’’. They ‘’called upon the FSB and the FATF to report to the next G20 Finance Ministers and Central Bank Governors’ meeting on adoption and implementation by countries’’.
The FATF is therefore currently looking at the consequences of the financial and economic crisis, in particular in relation to the issues of international co-operation, transparency, and global compliance with the standards. Objective is to identify vulnerabilities exposed by the financial crisis and to react appropriately.
The FATF has just sent a report to the G20 Ministers of Finance and Central Bank Governors for their meeting early September.
2. International Cooperation
I think it is important to say a few words about recent initiatives of the FATF in the area of International Co operation.
Some jurisdictions expose us all to unacceptable risk by failing to implement effective AML/CFT systems. When a country chooses not to engage with the FATF in a meaningful way, the FATF must be ready to take firm action. To address this, the FATF adopted a process in 2006 to identify, examine and engage with vulnerable jurisdictions. Since then we have achieved some good results with almost all countries in that process. Many countries improved their laws and regulations.
The FATF has also publicly expressed its concerns with certain jurisdictions so as to allow all others to alert their financial institutions to take into account increased risks.
Public statements have been issued (on Iran and Uzbekistan for instance), calling for enhanced due-diligence and further strengthening of preventive measures by financial institutions.
This year, revised procedures were agreed by the FATF, which are designed to identify jurisdictions with which international cooperation has been difficult or impossible or where there exist significant deficiencies in the AML/CFT regime. After the initial identification of potentially high risk and unco operative jurisdictions has been made, the FATF will decide which of these should be publicly identified. It is expected that any public announcement will be made early next year.
The FATF will consider the progress of every publicly identified jurisdiction on an ongoing basis and apply counter-measures where necessary. The FATF will closely work with individual countries and all the FSRBs, including ESAAMLG, during the entirety of this process.
3. Mutual evaluations and the 4th round
And finally for this morning, a central element of the FATF’s and the ESAAMLG’s business in the coming period is the peer review process through which we evaluate our AML/CFT regimes.
We are heading towards the end of the 3rd round of evaluations of FATF members. Currently, 25 of the FATF’s 32 members have been assessed. Worldwide, since 2004, 118 jurisdictions have been evaluated so far using the current AML/CFT Methodology.
As you know, the FATF is about to begin a review of some parts of the Recommendations. Some areas of the international standards will be reviewed, especially in relation to law enforcement and international cooperation issues, financial institution secrecy laws and certain aspects of the preventive measures.
Further increasing transparency and effectiveness of the FATF standard are key notions. I sincerely hope ESAAMLG as a group and your countries individually will provide input to this work, so important for the future success of the FATF-family.
Conclusion
I would like to conclude by saying that your countries, individually and as a group, are essential players in FATF processes and projects. FSRBs, including ESAAMLG, carry the global AML/CFT message; they monitor their members’ progress in implementing the 40+9 Recommendations; and they are instrumental in providing feedback and highlighting regional issues that can inform policy directions taken by the FATF. They are the communication channels for most of the countries to present their views. In addition, FSRBs in many regions are the key focal point for technical assistance and training.
The FATF certainly benefits from the input of ESAAMLG and its members. The global effort to combat money laundering and terrorist financing is made richer and stronger by the active input from the many countries around the world. I count on your support for this and future years.
It is a pleasure to be here. Thank you very much for you attention.
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