"Money laundering and the financing of terrorism are
financial crimes with economic effects. They can threaten
the stability of a country's financial sector or its
external stability more generally. Effective anti-money
laundering and combating the financing of terrorism regimes
are essential to protect the integrity of markets and of the
global financial framework as they help mitigate the factors
that facilitate financial abuse. Action to prevent and
combat money laundering and the financing of terrorism thus
responds not only to a moral imperative, but also to an
economic need." – Min Zhu, Deputy Managing Director of the
IMF
Money laundering is a process by which the illicit source of assets
obtained or generated by criminal activity is concealed to
obscure the link between the funds and the original criminal
activity. Terrorism financing involves the raising and
processing of funds to supply terrorists with resources to carry
out their attacks. While the phenomena differ in many ways, they
often exploit the same vulnerabilities in financial systems that
allow for an inappropriate level of anonymity and
nontransparency in the execution of financial transactions.
In 2000, the IMF responded to calls from the international
community to expand its work in the area of anti-money
laundering (AML). After the tragic events of September 11, 2001,
the IMF intensified its AML activities and extended them to
include combating the financing of terrorism (CFT). In 2009, the
IMF launched a donor-supported trust fund to finance technical
assistance in AML/CFT. In 2011, the IMF’s Executive Board
reviewed the effectiveness of the
Fund’s AML/CFT program and gave strategic guidance for the
work ahead.
A threat to economic and financial stability
The international community has made the fight against money
laundering and terrorist financing a priority. The IMF is
especially concerned about the possible consequences money
laundering, terrorist financing, and related governance issues
have on the integrity and stability of the financial sector and
the broader economy. These activities can undermine the
integrity and stability of financial institutions and systems,
discourage foreign investment, and distort international capital
flows. They may have negative consequences for a country’s
financial stability and macroeconomic performance, resulting in
welfare losses, draining resources from more productive economic
activities, and even have destabilizing spillover effects on the
economies of other countries. In an increasingly interconnected
world, the negative effects of these activities are global, and
their impact on the financial integrity and stability of
countries is widely recognized. Money launderers exploit both
the complexity inherent in the global financial system as well
as differences between national anti-money laundering laws and
systems, and they are especially attracted to jurisdictions with
weak or ineffective controls where they can move their funds
more easily without detection. Moreover, problems in one country
can quickly spread to other countries in the region or in other
parts of the world.
Strong AML/CFT regimes enhance financial sector integrity and
stability, which in turn facilitate countries’ integration into
the global financial system. They also strengthen governance and
fiscal administration. The integrity of national financial
systems is essential to financial sector and macroeconomic
stability both on a national and international level.
International standards guide effective AML/CFT regimes
The
Financial Action Task Force on Money Laundering (FATF), a
36-member inter-governmental body established by the 1989 G-7
Summit in Paris, has primary responsibility for developing a
worldwide standard for AML and CFT. It works in close
cooperation with other key international organizations,
including the IMF, the World Bank, the United Nations, and
FATF-style regional bodies (FSRBs).
In order to identify steps that national governments should
take to implement effective AML/CFT regimes, the FATF issued a
list of recommendations which set out a basic, universally
applicable framework of measures covering the criminal justice
system, the financial sector, certain non-financial businesses
and professions, and mechanisms of international cooperation. In
February 2012, these recommendations were revised and updated (The
FATF Recommendations). In February 2013, the FATF adopted
the new
Methodology for Assessing Technical Compliance with the FATF
Recommendations and the Effectiveness of AML/CFT Systems. The
work of the FATF, as well as the IMF’s in AML/CFT efforts, has
been supported by the G-7 and the G-20, most recently in the
context of initiatives to address the 2008–2009 international
financial crises and the aftermath.
The IMF’s role in AML/CFT efforts
During the past 13 years, the IMF’s efforts in this area
helped shape international AML/CFT policies, and included over
70 AML/CFT assessments and a large number of technical
assistance and research projects. The IMF’s broad experience in
conducting financial sector assessments, providing
technical assistance in the financial sector, and exercising
surveillance over members’ economic systems has been
particularly helpful in evaluating countries’ compliance with
the international AML/CFT standard and in developing programs to
help them address identified shortcomings.
In line with a growing recognition of the importance of
financial integrity issues for the IMF, the AML/CFT program has
evolved over the years. In 2004, the Executive Board
agreed to make AML/CFT assessments and technical assistance
a regular part of IMF work. On June 1, 2011, the Executive Board
discussed a
report reviewing the evolution of the IMF’s AML/CFT program
over the past five years and provided guidance as to how to move
forward in this area. The key outcomes of the discussion can be
found
here. On December 14, 2012, a
Guidance Note on the inclusion of AML/CFT in surveillance
and financial stability assessments (FSAs) was issued. It
provides a frameworkto deal with cases where money laundering,
terrorism financing, and related crimes are so serious as to
threaten domestic stability, balance of payments stability, the
effective operation of the international monetary system—in the
case of Article IV surveillance, or the stability of the
domestic financial system—in the case of FSAs.
In April 2009, the IMF launched a donor-supported trust
fund—the first in a series of Topical Trust Funds (TTF)—to
finance
technical assistance in AML/CFT. Switzerland, Norway, the
United Kingdom, Canada, Kuwait, Qatar, Saudi Arabia, Japan,
Luxembourg, the Netherlands, Korea, and France have committed to
collectively provide US$27.3 million over five years to the
financing of the TTF to contribute to the strengthening of AML/CFT
regimes worldwide using the IMF’s proven expertise and
infrastructure. The TTF has begun its fourth year of operations
and plans to implement approximately 40 technical assistance
projects in over 30 countries this year. In light of the success
of the program, and in light of continuing high demand for
technical assistance in this area, a new five-year phase of the
TTF is currently under discussion for the period 2014-2019.