Reinforcing the global AML/CFT structure

By FATF President Luis Urrutia Corral

at the XVII Caribbean Financial Action Task Force (CFATF) Council of Ministers Meeting

George Town, Grand Cayman, Cayman Islands.

5 November 2010

Honourable Attorney General and Incoming CFATF Chair, Ministers, Executive Director and CFATF Secretariat staff, distinguished delegates and friends,

It is a pleasure for me to attend your meeting, and I want to thank you and the authorities of the Cayman Islands for the invitation and for such a splendid event hosted with a warm heart.

Only two weeks ago, I had the honour of chairing the FATF Plenary meeting for the first time. At that Plenary meeting, we considered the FATF mandate for the Mexican Presidency that I have the honour to hold until June 2011. I am very happy to be able to inform you that the FATF Plenary meeting unanimously adopted the mandate that I had proposed, and I am pleased to have the opportunity, amongst other things, to explain that mandate for the first time at a meeting of an Associate Member.

The mandate for my Presidency contains a range of diverse issues, but there is one recurring theme that is fundamentally important for my Presidency and is closely linked to the work of this regional body. It is the need to Reinforce the Global AML/CFT Community. The global network established by the FATF and the FSRBs is the mechanism for implementation of the standards which in turn is our raison d’être. I believe that it is critical for the FATF and its Associate Members to preserve the good things that we have, but to strive for improvements where necessary and for that we need to step into a new stage of our relationship.

In my view, reinforcement is necessary on a variety of issues. Improved global implementation of the FATF Standards, assisting in the fight against corruption, and fostering financial inclusion, are some of them, and they all have been acknowledged by FATF as objectives to pursue during the Presidency that Mexico now holds. All of these issues, as all others that FATF is looking at, are critically dependent on a well functioning global AML/CFT community. Therefore greater focus on the good working relationships between FATF and its Associate Members is essential.

Associate Membership

I would now like to say a few words about Associate Membership. A few years ago, the FATF created the Associate Membership status, a new level of FATF style regional bodies. Associate membership is designed to give FSRB members equal access and input to FATF meetings, documents and discussions. FATF is convinced that equal access to information and decision making processes will assist the work of both FATF, and FSRBs.

CFATF reached Associate Membership status in February 2008, and at the FATF Plenary meeting in June 2010, the final three FSRBs became Associate Members. It is now time for FATF to reflect on the Associate Membership status, to evaluate the input that we receive from Associate Members and the output that is created by Associate Members. To this end, I plan to table a discussion and policy paper at the FATF Plenary meeting in February 2011, and will be seeking input and consultation from all Associate Members.

As a first step, the discussion will focus on the expectations that FATF has of its Associate Members and equally, what expectations Associate Members have vis à vis the FATF. This needs to be done against the backdrop of why each of our bodies exists. FATF Presidents and the Secretariat have access to all 8 Associate Member meetings, as do some FATF members that participate in one or more Associate Members as members, observers or COSUNs. Through this, FATF has a sound understanding of what Associate Members can be expected to achieve, and what not. It is time for all parties to reflect on this, put our collective thoughts on paper and discuss them.

In raising this subject I need to be candid and say that the FATF, in general, is not yet fully satisfied with the implementation of the Associate Membership status.

In preparation of this speech, after listening to a number of FATF members, Secretariat staff, COSUNs and active participants in CFATF, I decided to go beyond the general remarks that are usually made by FATF Presidents at these kind of events, and take the opportunity to share with you my thoughts about CFATF in this regard. In the end, I think it would be unfair to this body if I did not share some concerns regarding the current functioning of CFATF that I hear as the Chair of the FATF.

As I said earlier, through our involvement with all Associate Members, FATF is able to compare the functioning of the different Associate Members on an objective basis. In my view, there is a perception that CFATF does not compare as favourably as it should with other Associate Members in certain relevant cases.

Over the past years, FATF could still see a stronger driving force in CFATF, and has noted the absence of CFATF Chairs from FATF meetings. Membership fees are consistently paid late. Budgets and financial audits lack transparency and consistency, which is a serious concern to FATF. There is a general lack of policy papers and policy discussions. Agreed procedures, such as those to sanction non-paying members, are not enforced. Input to FATF is very limited. CFATF Members rarely comment on FATF papers, and the CFATF Secretariat is not present at all important meetings as would be expected. Mutual Evaluation Reports are often delayed, and too often not consistent with other FATF or FSRB reports.

Finally, follow-up procedures are ignored by some members.

As a representative of an organization that relies on regional bodies like CFATF to produce a global effect, I trust that the impact of my words will be taken in a spirit of improvement and co-operation that derives from a shared concern and aims at our mutual goal of fully implementing the standards. I have to stress that all these issues are based on a comparison with other FATF Associate Members, and most of these issues relate to Associate Membership expectations that are currently not met by CFATF. The recent departure of Costa Rica and Panama to GAFISUD is an indicator that concerns also exist among CFATF members.

Your recent discussions confirm that we all share similar concerns, and I congratulate you for the clear acknowledgement you have taken on the underlying issues —as highlighted, for example, by you, Mr. Chairman, under your current work programme— and I also commend the initiatives that you have taken to overcome the challenges that CFATF faces. In this respect, a special recognition should be given to the Working Group on Reflection and Improvement, the Quick Review of the CFATF Financial Situation, and the Strategic Plan, and I look forward to positive outcomes from all these initiatives in the near future.

Having said this, I would like to stress my long term confidence in the ability of CFATF to deal effectively with these challenges. I encourage this organisation to play a more active role in FATF, which at a minimum necessitates the participation of CFATF and its Secretariat in all our meetings.

In addition, I would suggest that the recommendations made by your members regarding your short and long-term financial stability and viability are implemented as a priority, that procedures regarding non-paying members are applied, that your Plenary meeting is reformed along the lines of other Associate Members’ meetings, including the introduction of working groups, and that recommendations of the Working Group for Reflection and Improvement are also implemented.

I will follow your progress with deep interest. More specifically, my expectation is that the discussion that we will have in FATF in February 2011 concerning the Associate Membership status will result in a call to the FATF Secretariat to prepare assessments of how the Associate members meet this status, for discussion at the FATF Plenary in June 2011. Honourable Chairman, I invite you personally to participate at our February and June 2011 Plenary meetings to ensure that the CFATFs voice is heard in this discussion and I offer to you my full co-operation for that purpose.

Standard setting

Let me now turn to another important issue – standard setting.

We all know how quickly money launderers and terrorist financiers adapt their ways, and FATF has no choice but to ensure that the FATF Recommendations remain a comprehensive and up-to-date tool for jurisdictions. Since June 2003, we have amended our Recommendations as needed, and —with the end of the third round of mutual evaluations approaching— we have commenced on a focussed review of the 40 Recommendations.

Many Associate Members provide their input to this process. Some Associate Members comment directly to FATF on discussion and consultation papers. Other Associate Member Secretariats receive instructions from their members. Whatever model fits CFATF best, it is important to realise that this is a rare chance for FATF and Associate Members to have an impact on the Standard that will be used to assess them.

I urge you to embrace this chance. And even if your jurisdiction lacks the resources to participate in this process, I strongly encourage you to still ensure that your experts follow the discussion at home and assess the consequences of that discussion for your jurisdiction. This will enable your respective jurisdiction to pro-actively bring your AML/CFT system into line with the updated FATF Standards.

I am sure that you will agree with me that an informed and pro-active approach is better than a reactive one after an unfavourable and publicly available mutual evaluation.

The review is ongoing, and at our last meeting in Paris two weeks ago, members discussed for the first time a consolidated report of three sub-working groups on the discussions that took place over the previous year. Issues that have been discussed relate to beneficial ownership, mutual legal assistance, the risk-based approach, tax crimes as predicate offences for money laundering, and the incorporation of the Merida Convention on corruption. For the next year, more discussions on these issues will take place, and there will be other issues that will be tabled, such as the structure of the FATF Recommendations, data protection and privacy issues, and exchange of information within financial groups.

Again, I encourage CFATF to take maximum advantage of the opportunity it has for input to these discussions.

Fighting corruption

I would finally like to spend a little time on two other important issues for the Mexican presidency – corruption and financial inclusion.

Fighting corruption is a priority globally. The G20 Leaders in their Pittsburgh conclusions called on the FATF to give higher priority to fighting corruption. We do so in three ways.

First, we take corruption into account in our review of the 40 Recommendations. That does not mean that FATF will become the standard setter for corruption. But it does mean that we are willing to adapt our standard if that is also beneficial to the fight against corruption. I already mentioned the incorporation of the Merida Convention, but we also look at customer due diligence, beneficial ownership and transparency issues.

Second, FATF wishes to move ahead and connect with anti-corruption experts. As an initial step, FATF has just released an information note to raise public awareness of how the FATF Recommendations help combat corruption. We want to further elaborate on this, explain the AML/CFT Standard to anti-corruption experts, learn what elements are useful and share this knowledge with relevant stakeholders.

Third, FATF intends to engage in closer co-operation with anti-corruption standard setters. The value added that FATF can bring to the anti-corruption campaign is the experience with its unique enforcement infrastructure, which has a positive effect on global compliance.

In addition, probably more than any other standard setter, FATF has a frequent interaction with and knowledge of the financial sector. In our interaction with standard setters, FATF will be able to share its best practices in this regard.

Financial inclusion

Now let me turn to financial inclusion, which is another important topic for my presidency. Over the years, signals have reached the FATF that the FATF Standard is in some ways an impediment to financial inclusion, and perhaps the aforementioned unique enforcement structure has encouraged regulators and legislators to follow the FATF Standard strictly without taking into account the type of customers envisaged by the term “financial inclusion”.

It is important for FATF to ensure that AML/CFT measures are not an impediment to the supply of financial services to the low-income sector. Many of the Recommendations that are designed to mitigate ML/FT risk focus on customer due diligence, transaction monitoring and record keeping, and can only be implemented for those sectors of the population that have access to the financial sector. In this respect, factors of financial inclusion and AML/CFT measures can in fact reinforce each other.

The FATF will take financial inclusion more into account for its work. FATF will also actively engage with other relevant bodies, such as the World Bank, to further promote access to the financial sector for all people. I would like to invite the CFATF to share its experience in this area with FATF.

Conclusion

Chairman, the mandate for my Presidency includes many other initiatives that I will develop to reinforce the global AML/CFT structure, but time is too short to lay them all out. I do however ask you to note that I have decided that the meeting between the FATF President and all FSRB Presidents, held in June in Amsterdam 2010 at the occasion of the 20th anniversary of FATF, should get a permanent character. The next such meeting will be held in Mexico City in June 2011 and I cordially invite you to this meeting Mr Chairman.

FATF needs CFATF’s support in the implementation of its priorities, as FATF depends on an effective CFATF. I believe CFATF should actively engage in our discussions. We can only take your challenges and solutions into account if we hear about them. Second, as I indicated at the start of this speech, CFATF will need to implement a number of significant changes to its current functioning, if only not to challenge the recognition of CFATF as an Associate Member in FATF.

Mr Chairman, I have great trust that CFATF will be able to meet the challenges facing it during your Presidency and that I look forward to providing a positive report on CFATF to the FATF Plenary in June 2011. Be assured of my readiness and that of the FATF to assist you wherever possible.

Honourable Attorney General, your Excellencies, delegates, dear friends, thank you for having me here at your meeting. I wish you all well for this plenary meeting and your future work.