Speech by David Lewis
FATF Executive Secretary
50th Meeting of the Council of Europe Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL)
Strasbourg, 12 April 2016
[As prepared for delivery]
Thank you for inviting me today, and on this the occasion of your 50th meeting. It is one of my top priorities to strengthen the global network and I am keen to build strong relationships with each of the FSRBs. This is my first FATF-Style Regional Body (FSRB) since starting the job in November last year. I had hoped to come sooner but the focus on ISIL has not made that possible.
I was very impressed when I last visited MONEYVAL for the UK during its presidency of the G8. On that occasion I was here to talk about international action on beneficial ownership, a previously rather technical FATF issue, with little awareness outside FATF circles, but which has since become a global aspiration and thanks to the Panama papers is again on the agenda of world leaders.
MONEYVAL was the only FSRB to conduct two rounds of evaluations under the 2004 FATF methodology and was the first FSRB to start assessing effectiveness. It is one of the oldest and strongest FSRBs in the global network and sets an example for all to follow.
The work we do has never been more central to protect financial systems, the broader economy and contribute to safety and security. It is vital that members hold each other to account for robust regimes and that our evaluations are subject to scrutiny. None of us can be seen to be doing each other favours and patting each other on the back when it comes to discussing these evaluations.
FATF today consists of 37 members, 9 regional bodies, 198 jurisdictions, and works in close partnership with the UN and Egmont Group of Financial Intelligence Units. This makes us more inclusive than the UN, with all 198 jurisdictions having committed to implement the FATF standards and to being assessed by their peers using the FATF methodology and now subject to global procedures for doing that to ensure quality and consistency. There are only 10 jurisdictions worldwide that are not currently members of the global network and most of these are in the process in joining a FSRB.
FATF (with FSRBs) is the first body to attempt to assess how effective countries are in dealing with the problem the standards are designed to address; going beyond whether countries have the appropriate laws and regulations in place. As a result of the work we have collectively done since 9/11, the vast majority of countries globally now have the frameworks in place to be able to cut off terrorist financing.
However, as the FATF reported to the G20 in November, most countries have never prosecuted anyone for terrorist financing or used financial sanctions against individuals and organisations involved in terrorist financing. Of the small number that have frozen terrorist assets, this has been much too slow to be effective.
Our special scrutiny of jurisdictions with strategic deficiencies, through the International Cooperation Review Group (ICRG), has been successful in forcing action. Some 80 countries have been subject to this since 2007. 59 of them have been publicly identified and 46 have since taken action and come off the list. And we saw last year that the faintest prospect that countries would be named for failing to fully criminalise TF and be able to use targeted financial sanctions, led to 37 countries passing legislation in less than 3 months and 21 committing to do so. This could not have been achieved without the support of MONEYVAL.
Europe continues to present some particular challenges for those countries implementing the FATF standards, whether due to delays transposing UN sanctions or the legal framework which focuses on risks outside of Europe at the expense of risks inside Europe. MONEYVAL will need to continue to play an important role in promoting effective implementation of the FATF standards within Europe, including through its evaluations.
Engagement with the private sector has also never been more important.
Next week we will hold the FATF Private Sector Consultative Forum, which this year is being hosted by the UN in Vienna and will feature a day with the NPO sector.
The public don't understand and don't need to understand the world of FATF and FSRBs. We must act and communicate as a global coalition and not get subsumed by jargon and technical details that makes our work meaningless to the outside world, and worse makes it look like we are part of the problem by imposing bureaucracy.
Easily accessible, easy to read, easy to understand evaluations are a critical part of this. The reader should not have to search for key findings or the recommendations for countries.
This brings me to the biggest challenge we face today - implementation. The Panama papers are big news today but they are really just another example of why we must promote, support and enable effective implementation of the FATF standards by countries. Most countries now have laws and regulations but too few are using them and those that are, are rarely doing so effectively.
Implementation and the cost of implementation versus the rewards of turning a blind eye to the sources of funds, or even purposefully hiding the destination, remains a big issue for the regulated sector. We have seen banks fined billions for egregious failures, not minor errors.
In the last 3 years alone, most of the biggest banks in the world have been fined for activity that was either criminal or bordering on criminal.
However, largely as a result of this activity we are seeing unprecedented investment in systems and controls. Many banks have hired the best experts globally. We should be working harder to exploit this investment to tackle money laundering and terrorist financing.
But the fear of such fines, together with the broader regulatory reforms since the financial crisis, means that instead of managing their risks, many banks are choosing instead to terminate whole classes of customers and business lines in entire countries. We have seen this referred to as de-risking and the FATF has come out strongly and publicly to address it.
Pushing customers back to the cash economy exasperates financial exclusion and significantly raises the risk of money laundering and terrorist financing by making it much more difficult to detect, track and investigate money flows.
Banks can manage these risks effectively and continue to make substantial returns without leaving vulnerable customers and businesses without access to basic banking services.
For this reason it is imperative that regulators are properly incentivised to ensure banks are taking a proportionate and effective approach to managing their risks and that they work in partnership with the authorities to help tackle these risks. FATF and the FSRBs have an important part to play in bringing about this change and to leverage the investment already made through more effective collaboration and partnership with the private sector. Identifying issues like de risking and disproportionate, inappropriate and ineffective regulation is something that should be identified explicitly in our evaluations.
Thanks to ISIL the biggest risks are now on our door step – no longer in lower income countries where corruption is endemic but in the major financial centres, and here in Europe.
The emergence of ISIL has required us to change the nature and intensity of our work.
Why is this? Well not just because we all need to step up action to fight terrorism but because detecting and disrupting terrorist financing might be the best use of the resources we have. Physical surveillance is simply not possible on the scale required. It takes
10 agents to follow one suspect
3 shifts = 30 agents a day
Sickness and holidays = 38 agents a day
8 000 ISIL affiliates in Europe would require over 300 000 agents – more than the entire French and Belgium police forces put together.
This is why financial intelligence offers such huge opportunities and needs to be gathered and shared much more effectively. Data analysis and mining tools used by the right staff offer great potential.
In a world where a single bank can have upwards of 55m customers and well over a million suspicious transaction reports are submitted to authorities every year in a single jurisdiction, greater focus in following the money is the only answer.
But there remain barriers to doing this, in particular to information and intelligence sharing, between agencies, across borders, with the private sector and within the private sector. Thanks to recent terrorist attacks we all know about the failures of authorities to share or act on intelligence in a timely way.
However the barriers to exploiting the largest source of intelligence, the banks, remain largely unaddressed. A 2011 Egmont report found half of countries don't allow the sharing of suspicious transaction reports across borders within financial institutions and don't give the same protection to foreign reports as they do for domestic reports.
We must all work together to identify the countries and laws that are preventing the use of financial intelligence for detecting and disrupting terrorist acts, as well as for money laundering and tax evasion.
That is why FATF now has a consolidated strategy for tackling terrorist financing and why we are following up the fact finding initiative by collecting new data from members on their assessment of the risks, the information sharing challenges they face and the approaches they have taken to overcome these challenges.
Following our targeted exercise last year, 18 countries are now subject to special scrutiny for not having the basic measures in place to be able to combat terrorist financing.
These countries will be given a chance to act quickly. They will be encouraged to seek technical assistance to help them, and if they still fail to act they could face the prospect of being named publicly.
This shows the value of such targeted reviews and the need for us to work closely together in the global network in the design and implementation of them in future.
Finally, let me end with a word about the resources and support Secretariats need.
FSRB Secretariats have a tough job. Members need to support them, especially through change. There is a greater burden on them than ever before. The new methodology for assessing effectiveness is extremely testing for everyone. If we work together to get this right, to ensure our products are accessible, timely, relevant and actionable, then we can make a big difference to the fight against crime and terrorism.
I look forward to working closely with MONEYVAL and other FSRBs and supporting each other in this challenge.
Thank you again for the opportunity to address you today.