Here’s is a transcript of Neil's recent talk at the Effective Financial Crime & Compliance Conference in Doha, Qatar – 4th September 2022
Money laundering is just over 30 years old. Much has changed in those 30 years but however - much stays the same. Whilst the world has moved to implement anti-money laundering standards, we will see much more needs to be done to tackle the use of legitimate businesses by criminals to launder the proteins of their crimes.
In April this year the FATF published an important document which is effectively a scorecard on how we are all doing in the fight against money laundering and the implementation of AML & CTF This report provides some increased focuses and some areas of attention and the effectiveness of MLCTF (money laundering counter terrorist financing) is a key element in that.
The fight and the focus on effectiveness creates both risk and opportunities for both the public and the private sector which we will explore through this presentation As you can see Effectiveness is being increasely focused upon but as we stand to here today - Effectiveness - which has only been an FATF concept since 2003 and was only introduced as part of the fourth mutual evaluation round of mutual evaluations - is lagging behind Global implementation of standards And Effectiveness is where really the fights against money laundering and the fight against terrorist financing is focusing upon Effectiveness is an important area where both the public and private sectors can work together and ultimately will have a significant impact on the success of AML CTF regimes globally In the coming decades as you can see from the current graph.
There is a good level of compliance from the standards the FATF 40 recommendations but you can see that there's much more work to be done on Effectiveness and that's globally that's not only in the FATF membership - but also in the regional bodies as well Today we are going to focus on three areas in the report which are important areas for financial institutions and the public sector alike We're going to look at the assessment of risk We're going to look at the preventative measures that are contained within the standards And we're also going to be talking about transparency and beneficial ownership which is an increasing focus both globally But regarding - not only anti-money laundering .
Canada's financing but also tax CRS and Factor risk assessment is important. Risk-based approach requires that everybody understands the risk It allows for a proportion approach to AML CTF and has the ability to allow financial institutions and others covered by AML CTF to really address the real risks rather than the hypothetical risks and ultimately make sure the regime is fit for purpose As you can see after that people have raised / our countries have raised their game after the mutual evaluations have occurred so the scorecard to date is that premature evaluations risk assessment needed to improve But we've seen a significant increase in risk assessment over the last few years.
Interestingly enough from a financial FATF styled Regional bodies there is an increased requirement to make sure those risk assessments are affected With only 19 of FATF staff Regional body assessments continuing to receiving substantial or higher, higher risk ratings - the reason for this may be timing Most countries only undertook their first set round of risk assessments just before the mutual evaluations so you could argue that risk assessment is not very mature - It's still growing … it's still evolving … but as it's a foundational element of money laundering and anti-money laundering it's important there's an increased focus in this area and this creates an opportunity It creates risk because as you look at risks … as you document risk … if you as you understand risks… you may find that you've got to move your regime or you've got to adjust your approach.
But it also creates an opportunity because it allows you to focus fairly and squarely on those risks Summarized into a number of phrases - the risk assessments need to be current - they need to be up to date - they need to be continue to be remained inaccurate - they need to be done in Partnership this is not something that the public sector needs to do for the private sector or the private sector needs to do for the public sector this is a true partnership between the public and private sectors To understand the risks … because we all have different perspectives on this … the risk assessment should be as detailed as possible.
And that's not only at a national level but that's at an Institutional level as well It's vitally important that risk is fully understood by the organizations and those risk assessments should be used widely both at a national level but also within an institution they should be used to make decisions, they should be used to assess whether you want to do business as clients As we've heard previously how do we improve ?
Well the risk assessments I think need to get more comprehensive they need to be based on data there's an increasing focus on data. We're in an increasingly data rich environment and this is borne out by other speakers today - but there also needs to be a clear methodology so we all understand how we're assessing risk and how we're quantifying risks I'm now going to move on to preventative measures Preventative measures are the FATF requirements that are put in place by reporting entities - financial institutions and those covered by the legislation The FATA talk about the big six. The big six recommendations. Three of them are focused on criminalization of money laundering, criminalization of terrorist Financing, and sanctions around terrorist financing… the other three of the big six are very much fairly focused on the AML On the AML CTF prevent prevention they are recommendation 10 recommendation 11 and recommendation 20.
recommendation 10 is customer due diligence as we can see on the left hand side recommendation 11 is recordkeeping - having Raffles transaction activity and recommendation 20 is the reporting of suspicious matters / reporting of suspicious transactions to the authorities However you can see from this graph there are a number of things that the FATF are focused on which contribute particularly to customer due diligence things like the identification of politically lost those people Things like the Reliance on the third parties which is particularly important in a in an environment where you have both financial institutions and designated non-financial businesses and professions working together to identify customers Obviously you can also see here that there's a little bit more work that needs to be done - on the right hand side in relation to customer due diligence into relation to designated non-financial businesses and professions It's true to say that up until recently there's been a heightened focus on financial institutions Banks and other and securities dealers Etc Really it's only - recently that the DNFB - the professions, lawyers, accountants and real estate agents, has come into focus and had a more dedicated focus and that may contribute to the lack of maturity we can see This lack of maturity here where we're looking at Banks as being more mature having good or average risk mitigation … understanding their risks whereas from a designated non-financial Services perspective the risks are less understood So I think that creates an opportunity to understand more about the risks in those sectors So what should be done? … Well we're looking at the preventative measures so I apologize - so we're looking at the preventive measures regarding suspicious matter reporting you can see that in relation to the DNA DPS
there's less of a focus on reporting so I think the FATF here is expecting that DNFBS there should be more focus on reporting or designated non-financial businesses Also I think it's highlighting across the sectors not only designated non-financial businesses but also in the financial service sectors that risk is not ….
The reporting is not in line with the risk … maybe we should stop to explore that Is that because SARS are not being reported? Is that because the organization is concerned don't understand the risks and the vulnerabilities they're facing and therefore are not able to identify SARS as effectively and efficiently as they may be able to do? The FATF comes up with some good suggestions around preventative measures…
The ability to articulate risk and align preventative measures to risk is important. Again they reinforce the importance of that public private sector partnership They also identify that information sharing is vitally important. They also see that this is a whole of Industry problem - this is not about singling out one sector. It's the industry working together to make things more difficult for the …. for the bad guys But also they're requiring / they are highlighting that there should be the same level of focus as we've seen on financial institutions up to now -
Now being applied to designated non-financial businesses and professions from an opportunities perspective Where does that leave us?
I think raising the bar in preventative measures. Making sure the preventative measures are the best they possibly could be. But against a background of risk an increased focus on designated financial businesses and that's not only in relation to them for the public sector focus on them It's also in relation to other parts of the industry Focus on them. We're seeing an increasing focus globally on financial institutions looking at the other types of reporting entity or regulated institution they bank and asking are they creating a risk for them simply because they're banking them but it should be outcome focused We should not necessarily be just trying to do compliance for compliance sake, we should be making sure that we actually are making a difference in the space I want to turn to beneficial ownership and transparency This is a being characterized as a new battleground …
but from my experience it's actually an Old Battleground that is now being Revisited In my experience that transparency and beneficial ownership has been a significant problem for many, many years - ever since the F ATF has been in position We're seeing an increased focus, particularly with the results of CRS and Factor activity and that's triggering a new focus in this space and obviously sanctions and the activity in the sanctioned space is also focusing on transparency of beneficial ownership But again …
Here we see across the board a low level of effectiveness a reasonable level of compliance but a low level of effectiveness and again I think that's where the FATF will be looking at in the fifth round of nutrient evaluations That is highlighted by some data on basically nominees and nominee arrangements As you can see both in in the FATF countries and also other countries there is an increasing focus in that space But there is more work to be done and the FATF then provides us some helpful eyes in good practice which is all around making sure things are more transparent Developing registers are having information about beneficial ownership obviously with considerations of privacy and confidentiality but having information available to those people that need it in order to be able to understand the risks that a particular customer poses so we're now circling right the way back to customer due diligence as we've mentioned previously and that also is highlighted by the opportunities These are heavily focused on customer due diligence making sure that the information is available to everybody so that's the report card from the FATF With the a few minutes I've got left I'll talk about what's moving forward Emerging priorities.
The real estate sector …
In July this year the FATF and published their real estate sector … the real estate real estate sector is being seen as an increasingly important sector for many countries As you can see 56 percent of countries say real estate is important to them as a sector however only three percent of countries truly understand the risk in that sector and 53 percent believe the risk is high or medium to high The question I think I brought post the audience … I'm not expecting an answer but the question I will post the audience is ‘how are you managing right identifying and managing that risk both as a country but also as individual businesses within uh the regulated sector moving forward?’
Singapore have recently been given the presidency of the FATF and they've clearly set out some priorities They will be the president of FATF from July this year to July 2024.
Focus of unaffected I don't think there's any surprise there from us / focus on raising the bar not only with the FATF membership and I come from a country Australia which is an F ATF member which is significantly still non-compliant with the FATF standards … that's something that we're put we're pushing very hard for in our but they'll also be focusing on the regional bodies as well this is making sure that everybody is playing by the same rules and doing it the best they possibly can but they're also signalling what the next round of mutual evaluations are going to be looking at They're going to be tightening them . There's going to be a shorter cycle. There's going to be more emphasis on risk…
There's going to be more focus on results on orientated activity and as announced in July this year the fifth round is going to be heavily focused on designated non-financial businesses and professions So in summary … you know there's a lot happening … there's a lot to be proud of … but there's also a lot of work to be done Thank you for your time
Neil Jeans
FINANCIAL CRIME COMPLIANCE & RISK CONSULTANT
Neil Jeans has a background in financial crime risk management, spanning over 25 years, including working within Law Enforcement agencies investigating financial crime, including domestic and international fraud and money laundering.
Neil was the founding Joint-Chair of the Association of Certified Anti-Money Laundering Specialists (ACAMS) Australasian Chapter, and is a member of the Chapter’s Advisory Board.
Neil runs a specialist AML/CFT consultancy practice providing advice and support to businesses subject to AML/CTF regulation, including undertaking reviews on the adequacy of AML/CTF systems controls and advisory services concerning regulatory compliance and regulatory enforcement activity. AUSTRAC appointed Neil as their expert witness in the civil claims against CBA and Westpac for AML/CTF breaches, which resulted in CBA paying a settlement of $700 million in 2018, and Westpac paying a settlement of $1.3 billion in 2020.