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by Paul Vlaanderen, FATF President at the 12th plenary meeting of EAG representatives, Almaty, Kazakstan - 2-3 June 2010
Mr. President, Mr. Executive Secretary, distinguished delegates,
Thank you very much for the invitation to attend this EAG Plenary. I am privileged and proud that in the twentieth year of existence of the FATF I have the distinct honour to be the first FATF President to complete the tour of working visits to all 8 FATF-FSRB’s. This visit also comes at a moment that EAG has formally applied for Associate Membership of FATF. So for many reasons it is a pleasure for me to represent the FATF here at your meeting.
I would like to focus my contribution on the global compliance with the international AML/CFT standards and the role that EAG is playing in this process. But before doing so I will give you my perspective of where the FATF family comes from and where I believe we are going together. Compliance will be an important part of that glimpse into the future. And of course I will share with you my sentiments about the role of FSRB’s and the role of EAG. I will conclude that the contribution you make and hopefully will make is vital for the present and future successes of FATF.
FATF today
FATF today can only be understood if we know were we come from. Therefore a few words of history: as you all know the FATF was established in 1989 by the G7 Summit in Paris in response to large amounts of drugs money being laundered. After 9/11 terrorist financing was added to the mandate. The mandate of the FATF is set by its member jurisdictions at ministerial level.
Over the last 20 years, the FATF has grown to be an intergovernmental body that develops and promotes policies and standards to combat money laundering and terrorist financing. The FATF has evolved into being the standards setter in its field of work. The 40+9 Rec’s are today the widely accepted international AML/CFT Standard. Accepted by the private sector and international institutions like the European Union, the World Bank, IMF and United Nations.
In 2008, ministers widened the FATF mandate by also including “other emerging threats”. In this context, proliferation financing is an area where the FATF can add value to the wider efforts of the international community. And perhaps the last year’s call by the G20 leaders to look closer at issues related to corruption should also be placed into this category.
FATF Family
Mandate is obviously very important. But equally important is geographical coverage, I think this is the moment to discuss the growth in size and intensity of the “FATF Family”. As a policy making body, the FATF wants to co-operate with the largest possible group of participants that share the political will to bring about national, legislative and regulatory reforms in the area of money laundering and terrorist financing.
Since its creation in 1989, the membership of the FATF has expanded from the original 16 members to 35 today. In the Plenary of last October I had the honour to welcome Korea as the 35th member.
In addition, eight FATF Style Regional Bodies (FSRBs) were created over the years to promote and implement the FATF Standards in their membership and regions.
Together with the membership of these sister organisations, the FATF community includes over 180 jurisdictions. This is a huge network and an impressive achievement in international collaboration! I am convinced that without a functioning global network there cannot be success for the FATF!!
Maintaining the integrity of the financial markets is the key objective of this extended FATF family: if markets are polluted with the proceeds of crimes, confidence in these markets will decline, which deteriorates investment climates and affects economic activity. I am therefore fully convinced that it pays to comply: non-compliance cost money! This is true in all jurisdictions.
Global compliance with the standards
So that brings us to the question of implementation of the standards as well as to the compliance with the FATF recommendations at national level throughout this family of 180 members. To this end, the FATF assesses compliance with the FATF Standards through its sophisticated peer review and follow-up system. I dare to say that FATF’s peer review system is the best or one of the best peer review mechanisms in the world!
Let’s go through the compliance system in a little more detail.
In order to join the FATF or one of the regional bodies - that is, to become part of the FATF Family - jurisdictions must make a high-level political commitment to implementing the 40+9 Recommendations. These commitments are a critical first step in a series that is designed to lead to similar, level playing field compliance with the standards throughout the world.
The political commitments are verified throughout the FATF and FSRB through the assessment and follow up processes. The most important pillar under all compliance is the Mutual Evaluation Process and every jurisdiction that has the experience of being assessed knows how resource intensive and sometimes painful the evaluation process is.
The results of the mutual evaluation bring out the strengths of a national system, but also in detail the areas where a jurisdiction needs to increase its compliance with the standards. Sometimes there is a large number of issues to address, and it may be difficult to do so given competing economic and political priorities. I know too well that it is tempting after the assessment to close that book and turn to other pressing priorities. But the evaluation is the start of the national process of improvement, not the end of it!
The international dialogue continues through the follow up process. That is an integral part of the mutual evaluation system, and also EAG has been implementing follow-up procedures for some years. At the end of the day, working hard on identified weaknesses will have important benefits and will have to make the necessary differences to combat crime. Improved compliance in national systems will benefit the citizens who pay their fair taxes and abide by the rules. Higher compliance improves law and order. Higher compliance also enhances transparency for financial markets and encourages further investments. AML-Compliance complements on-going anti-corruption efforts. This all means lower cost to the economy. As an economist I conclude that improvement in compliance with the AML/CFT standards will give jurisdictions a positive return on their investment.
As you know FATF has started an intensive effort called the “fourth round of evaluations”. This effort will reshape FATF and will prepare the Task Force for tomorrow. It will likely result in a stronger emphasis on implementation and compliance in its next round of mutual evaluations.
International Co-operation
However! The mutual evaluation and follow-up processes are critical, but not the only instruments in the toolbox of the FATF to improve compliance with international standards. Accelerated by the global financial crisis and the G-20’s call for increased efforts to improve financial transparency and cooperation, many international bodies acted.
So did FATF, through the report to the G-20 Ministers ahead of its September 2009 meeting. That report contained a global “snapshot” of all the jurisdictions’ level of compliance using the latest common AML/CFT Methodology. Meanwhile, FATF last February published two lists of jurisdictions with strategic weaknesses in their AML/CFT systems.
So, while peer pressure resulting from the results of mutual evaluations and follow up are crucial mechanisms to ensure compliance, our “International Cooperation Review Group—or ‘ICRG’—process aims to reach even further in facilitating improved implementation of the standards. It is an additional mechanism to enhance international cooperation and improve compliance at national level.
The goal of this most recent correction mechanism at FATF’s disposal is to highlight key deficiencies and risks to the international and regional financial systems, and help ensure that countries follow through with their international commitments. When analysing particular jurisdictions, the mutual evaluation and follow-up processes are important but not exclusive sources of information.
I need to underline here that a vital element of the ICRG process is that it can deal with jurisdictions both inside and outside the membership of the FATF. It can even reach outside the FATF-family!
This process also includes that the FATF will publicly identify those jurisdictions that are found to be non-cooperative and high risk. That public identification should enable other jurisdictions and financial sectors to take appropriate action to protect themselves from these risks. Past experience has shown that publicly pointing out problems – when necessary – followed by a close engagement with affected jurisdictions can be highly effective in further stimulating and accelerating national compliance with the standards.
I want to stress that the exercise the FATF has started this year through the ICRG is not a one off activity: the February 2010 list will be an evolving product with countries leaving the list and countries entering the list as the review process progresses.
The ICRG process is designed in such a way that there is a full role for the FATF-style regional bodies and their members. I do not exaggerate when I say that this vital part of that process is new and a “shot in the arm” for FATF-FSRB relations. Successful operation and progressive cooperation in area of peer pressure can only be achieved on the basis of mutual respect and a shared commitment to improving the global AML/CFT situation. One way to do this has been to create the four regional review groups which are each co-chaired by an FATF member and a member from the regional group.
There is no doubt that successful outcomes of the Regional Review Group will help deepening the relations between FATF and the FSRBs. Also therefore, I strongly encourage this continued cooperation in this process so that we are able to achieve our common goals of improved compliance.
The role of the FSRBs and EAG
This leads me to the last topic of my contribution today: the role of the FSRB’s and EAG. After its founding in 1989, the FATF recognised that it needed to build a broader network of international partners in order to realise its slowly but steadily expanding objectives.
Apart from the network of FSRB’s, our partnerships with the International Monetary Fund and the World Bank have also been fundamental, and I thank them here for their important role.
EAG was founded in the year 2004. You quickly adopted the 40 + 9 Recommendations and has adopted five Mutual Evaluation Reports and there are two more underway. Observers are welcomed to EAG. And finally, all Mutual Evaluation Reports are automatically published on the EAG website. It is without hesitation that I say that EAG has made enormous progress over the relatively short period of its existence. Thank you!
The FATF membership has acknowledged the important work that is done by FSRBs, and recognised the important progress made by certain groups such as EAG by considering at our next Plenary meeting the special “Associate Member” status within FATF. The goal is to recognise that progress by inviting associate members to play a larger role in FATF decision-making.
Since Russia and China are already members of the FATF, the privileged position of EAG is that nearly all your member countries can attend our Plenary meetings. This is a unique situation among the regional groups, and I take it that your expressed interest in our important international partnership is translated into accepting the special responsibilities that come with it and by taking advantage of the opportunities this special status provides for. I do not think I need to explain to this part of the world that there is not such a thing as a free lunch!
The FATF-style regional bodies are rapidly evolving into being a crucial element in compliance with the FATF AML/CFT standards. I highly welcome that trend.
Conclusion
Mr. Chairman, I have spoken a lot about the importance of compliance with international AML/CFT standards. Your organisation is taking an increasing important role in this process. As far as I can, I will facilitate you call for Associate Membership in June in Amsterdam. I trust you will also be an active participant in the 4th round work in FATF in the coming 1-2 years.
The role of EAG, and all other FSRBs is more important than ever in achieving our common goals: taking the profits away from criminals and protecting the integrity of the international financial system.
Together we can ensure a level playing field among all members of the FATF family that is characterised by high levels of compliance and transparency and managed levels of risk.
I thank you again very much for your invitation to be with you.
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