Keynote speech by David Lewis
FATF Executive Secretary
7th International Anti-Money Laundering and Compliance Conference: Fighting Financial Crime
Bratislava, 10-11 December 2019
Stopping money laundering is about stopping the harm caused by serious crime.
Today, thanks to the FATF, there are tens of thousands of investigations every year, nearly 8 000 a year in the UK alone, leading to thousands of prosecutions and convictions, and billions in criminal proceeds being frozen and confiscated. This leads to criminals being taken off the streets and stops those on, and off the streets, from profiting from their crimes and committing further crimes. Stopping money laundering reduces the harm caused to people and society by crime and terrorism, it protects the financial system, attracts investment, promotes economic prosperity and it enables and safeguards international trade.
Today, the FATF is often thought of as a regulator of regulators. It is not. The FATF is a multinational coalition of 39 jurisdictions that promotes action to stop money laundering. This involves action by law enforcement agencies and the criminal justice system, as much as by supervisory authorities, regulated businesses and Financial Intelligence Units. As a task force with a global network of over 200 jurisdictions, the FATF enables a coordinated response to a global problem and it promotes partnership between the public and private sectors.
Stopping money laundering is not about ticking boxes. However, today the AML system is characterised by just that. We know this not just because banks tell us.
We know this, and we can all know this, because of the evaluations conducted and published by the FATF. They show that in nearly 100 countries evaluated, fundamental or major improvements are needed in the preventive measures taken by banks, money service businesses, lawyers, accountants, company formation agents, real estate agents, casinos and others.
We know this, because as banks have been found wanting and compliance costs have soared, with some 84 billion spent annually in Europe, confiscation rates remain as low as 1% of the proceeds of crime estimated to be available for laundering.
And we know this, because despite the increasingly high volumes of suspicious transaction reports, law enforcement agencies only report – or at least record - a small fraction as useful.
So what needs to change?
As we have seen by the apparently endless stream of money laundering scandals, and the fines issued for these, supervisors are starting to wake up too. However, to avoid this leading to more box ticking, supervisors need to better understand the risks, have the skills and capacity to act, and to incentivise the right behaviour. This means recognising and rewarding activity that leads to the right outcomes, not only the right pieces of paper. It means supervisors, as well as banks, need to take a risk-based approach. It does not mean a zero tolerance approach. It does not mean a risk-free approach.
We need to accept that a risk-based approach means not stopping everything. It means accepting a failure rate. It means acknowledging that unless you close the banking system completely, that it will be used for money laundering, and that it’s not possible to catch every bad transaction. It means taking reasonable measures to prevent and detect it.
It also means that we need a clearer idea of what the right outcomes look like. If I work at a bank, I want to go home after work and say to my family that today I helped identify a human trafficking ring; that I stopped my bank from being used by a corrupt politician; that I intercepted a payment to an organised crime group for the sale of ivory or pangolin scales. It means that, by following the money, I was able to identify connections to other potential terrorists, following an attack.
We are seeing increasing numbers of good examples that are leading to the right outcomes, or with the potential to do so. This includes public-private partnerships that go beyond merely sharing typologies, to sharing actionable intelligence, without breaching data protection and privacy rules.
The potential for efficient, as well as effective outcomes, has never been greater. New technologies, from artificial intelligence and distributed ledgers to privacy enhancing technologies such as homomorphic encryption, offer great promise, while digital identity has the potential to reduce customer due diligence costs and increase financial inclusion.
So today, while the challenge has never been greater, so too the opportunity for improvement and stopping money laundering, has never been greater.
So what is the FATF doing about all this?
FATF evaluations shine a bright light on countries that are not doing enough and where the actions they are taking do not reflect the risks they face. Not only do FATF evaluations identify deficiencies, but they also provide recommendations on what countries need to do to improve. And importantly, they require countries to report back to the FATF on a regular basis. Those with the greatest deficiencies and that fail to act quickly enough, are named publicly.
This not only harms the international reputation of that country. It increases the cost of doing business, and in the worst case, it can lead to the country being cut off from the financial system altogether. It is an extremely effective tool. But for that reason we need to ensure that it continues to be used in a proportionate, timely, targeted and risk-based way; that it continues to achieve the right results, and that unintended consequences of de-risking and financial exclusion, as well as the misuse of counter terrorism measures, are minimised.
The evaluation and follow-up processes will continue to be at the centre of what the FATF does. As such, this year the FATF started a Strategic Review. This will look at what works best and what could be improved in the future. At its heart will be identifying and building on activity that promotes both effective and efficient anti-money laundering measures.
Last year, the FATF issued reports on the financial flows from human trafficking; on professional money laundering; on the concealment of beneficial ownership; on terrorist financing disruption strategies; on best practices for judges and prosecutors; and it has recently issued guidance on taking a risk-based approach in a number of different sectors. This includes guidance for lawyers, accountants, trust and company service providers, the life insurance and securities sectors.
In June this year, the FATF agreed the first ever global standards for the regulation of virtual assets, and published comprehensive guidance on how to implement these standards. In October, the FATF agreed how it was going to assess countries. And within less than a week there were teams of experts on-site in South Africa and Japan. From now on, all countries will be assessed against these standards and some are even coming forward on a voluntary basis to be assessed before their next evaluation.
In October, we issued best practices for the identification of beneficial owners of legal persons, and the FATF has agreed to consider whether its standards in this area continue to reflect emerging best practices.
Because the AML system is characterised by a tick box approach, and because our evaluations reveal that only 25% of countries have effective supervision, this year we are using the FATF’s convening power, to bring together supervisors from around the world. Last month in China, we convened 100 supervisors from 40 countries to ensure they understand what the FATF expects of them, for them to share the challenges they face, and to discuss how these challenges can be overcome. This ranges from developing a risk-based approach to supervision, to international cooperation between supervisors, and better use of technology, so called SupTech, for more effective and efficient supervision.
Also last month in Beijing, the FATF President and Secretariat joined representatives of Prince William’s United for Wildlife Financial Taskforce, to raise awareness among Chinese banks and the authorities, of illegal wildlife trafficking and how to prevent and detect this through the financial system. And next year, the FATF will use experience from law enforcement agencies around the world, to develop and publish best practices for the financial investigation of what is today the forth most profitable criminal trafficking enterprise.
To take advantage of new technologies and enable efficiencies, we have just completed a public consultation on the first ever guidance for the use of digital ID. And we expect to publish this in the coming months. To fully realise these efficiencies will require banks to rely more on others, and their tech. And to support this, FATF members should be encouraged to reconsider where legal liability lies when relying on others.
As well as continuing to monitor the use of virtual assets by criminals and terrorists, we are now working on the implications of stablecoins, and we will be updating G20 Finance Ministers and Central Bank Governors on the FATF’s policy recommendations for dealing with stablecoins and the risks and opportunities from financial innovation more generally.
Other ongoing work includes on the operational challenges for asset recovery; on trade based money laundering; guidance on the investigation and prosecution of terrorist financing; and on proliferation financing standards. And despite their loss of territory, the threat from ISIL persists, and we are continuing to closely monitor the financing of ISIL, AQ and affiliates.
Under the Chinese priorities for the FATF this year, in addition to the Strategic Review, work to keep pace with new technologies, work to improve supervision, and in critical areas such as illegal wildlife trafficking, we are also increasing the capacity for training worldwide. This builds on our training centre in Korea, with training now being led and coordinated by my team in Paris, using experts from FATF member countries, in addition to the development of an e-learning platform.
All this activity recognises that the challenge today is not the absence of standards. The challenge today is implementation, implementation, implementation – in short, effective and efficient action by the public and private sectors acting in partnership to stop money laundering; to reduce the harm caused by crime and terrorism.