Tag Archives: AML/CFT

FATF congratulates Guyana on AML/CFT Improvements

Alicia Nicholls

At its recently held plenary session on October 19-21, 2016, the Paris-based Financial Action Taskforce (FATF) congratulated Guyana on the “significant progress” the country has made in addressing the deficiencies in its framework for anti-money laundering/combatting the Financing of Terrorism (AML/CFT).

Background

Since its establishment in 1989, FATF has sought to protect the integrity of the global financial system from threats posed by money-laundering (ML), terrorist financing (TF) and the financing of proliferation of weapons of mass destruction. Its main role is setting and promoting standards on these areas and its 40 plus 9 Recommendations are the international standards for AML/CFT and the financing of the proliferation of weapons of mass destruction. FATF’s work is complemented by the nine FATF-style regional bodies, including the 27-member Caribbean Financial Action Task Force (CFATF), of which Guyana has been a member since 2002.

The AML/CFT Mutual Evaluation is a peer review process to evaluate each member country’s level of compliance with FATF’s Recommendations. These reviews are concerned not just with the jurisdiction’s technical compliance with the recommendations but also now with the effectiveness of the country’s AML/CFT systems.

CFATF was very critical of Guyana’s technical compliance with the FATF recommendations in its third round Mutual Evaluation report dated July 2011. Inter alia, the reviewers had highlighted several deficiencies in the Anti-Money Laundering and Countering of the Financing of Terrorism (AML/CFT) Act 2009, the  lack of statistics, staffing shortages and limited staff training. As a result, the country was placed on expedited follow-up and required to report every Plenary. Due to internal political wrangling over the proposed bill’s content, for many sittings Guyana’s legislature could not pass the proposed amended AML legislation.

This inaction, however, had several negative consequences. Starting in May 2013, CFATF had named Guyana among its list of jurisdictions with strategic AML/CFT deficiencies that had not made sufficient progress in addressing them and had warned that if Guyana did not take specific steps by November 2013, not only would it call upon its members to consider implementing counter measures to protect their financial systems from the ongoing ML/TF risks emanating from Guyana but would consider referring the country to the FATF International Cooperation Review Group (ICRG) which analyses the AML/CFT threats from high-risk jurisdictions.

After Guyana had failed to meet the agreed timelines in the action plan, the regional watch body followed through on its threat in its public statement released May 2014 in which it called on its Members to “consider implementing further counter measures to protect their financial systems from the ongoing money laundering and terrorist financing risks emanating from Guyana”.

That language may sound extreme to the reader considering that Guyana is not an international financial centre and any AML/CFT lapse is unlikely to cause even a ripple in the global financial system. Regulatory costs are burdensome for cash-strapped small states which often lack the financial resources and the human resource capacity to meet all the requirements. What little technical assistance is given is often not adequate. As countries which are not members of FATF Caribbean countries also have little say in the regulatory framework or agenda which are often slanted towards the interests of advanced economies.

However, these important inequities aside, a sound AML/CFT framework is important for countries, especially those with porous borders and which are dependent on foreign investment and foreign trade. Having a reputation for a deficient AML/CFT framework could make it difficult for an FDI-dependent country to attract new investment as some parent companies may prohibit the establishment of subsidiaries in a country with a deficient AML/CFT regime. It also increases the country’s risk profile which would make financial transactions and relationships with businesses and persons in that country subject to enhanced due diligence due to the higher level of perceived risk, increasing the chances of its local banks losing their foreign correspondent banking relationships and  thereby restricting its access to the global trade and financial systems.

Guyana’s progress to date

Since coming to power in 2014, the new government in Guyana has been able to implement several reforms to improve the country’s level of compliance with FATF recommendations. These changes have been well-documented in this article by Anand Goolsooran. However, some of those identified in CFATF’s 10th Follow Up Report released June 2016 include the passing of the AML/CFT (Amendment) No.2 Act 2015 in January 2016 and  of the AML/CFT (Amendment) Act No. 15 of 2016 in May 2016 and the issuance of AML/CFT Directives and Guidelines.

As a result, the CFATF assessors concluded as follows:

Guyana has significantly improved its overall level of compliance and most importantly Guyana has fully addressed the core and key Recommendations. While Guyana satisfies the criteria for application to exit the follow-up process, it is still in the FATF ICRG process which it needs to complete first. As such it is recommended that Guyana stay in enhanced follow-up and be required to report on continuing implementation to the next Plenary in November 2016

In mid-September 2016, the visiting FATF/ICRG delegation praised Guyana’s progress towards bringing its framework in compliance with FATF recommendations.  As of October 2016, Guyana is no longer subject to FATF’s on-going global AML/CFT compliance process.  Guyana will continue to work with CFATF to address the outstanding issues with the goal to exit the CFATF follow-up process.

The outcomes of the FATF October 2016 Plenary session may be viewed here.

Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

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Barbados’ Upcoming CFATF Mutual Evaluation: What’s at stake?

Alicia Nicholls

A robust regime for anti-money laundering and combating the financing of terrorism (AML/CFT) is critical for the integrity and stability of a jurisdiction’s financial sector. This is doubly critical in Barbados where the international business and financial services sector is the second largest foreign exchange earner. Any perceived gaps in Barbados’ AML/CFT framework could sully its international reputation as a place for doing legitimate business, with repercussions for local employment, foreign exchange inflows and tax earnings.

Barbados will shortly undergo its 4th Mutual Evaluation by the Trinidad-based Caribbean Financial Action Task Force (CFATF), the Caribbean regional associate member of the Financial Action Task Force (FATF). An intergovernmental body established in 1989, the FATF is the international standard-setter for AML/CFT and combatting the financing of proliferation. Last revised in February 2012, the FATF’s 40 recommendations plus its 9 special recommendations on Terrorist Financing and the Interpretive Notes are the internationally accepted standards for AML/CFT.

Read more of my article at the Broad Street Street Journal here.

Caribbean Region Most Affected by Loss in Correspondent Banking Relationships, according to World Bank Survey

Alicia Nicholls

The withdrawal by international banks of correspondent banking relationships with Caribbean-based banks and money transfer businesses has once again been making headlines in the Caribbean. This week Antigua & Barbuda’s Prime Minister raised the issue at the Fourth Summit of the Community of Latin American and Caribbean States (CELAC), terming it a “clear and present danger”. Last year mere weeks after Prime Minister Barrow of Belize raised the issue in his address at the Summit of the Americas in Panama, the Bank of America severed ties with Belize Bank, the largest bank in Belize.

Correspondent banking relationships are Caribbean countries’ umbilical cord to the international financial system. They allow for the conduct of international trade and investment by facilitating crossborder payments, as well as the receipt and sending of remittances through international wire transfers. At the microlevel these relationships help local exporters to receive payments for their goods and services, local businesses to pay for imports, and poor families to receive remittances for their day to day survival. As I mentioned in an earlier article, the loss of correspondent banking relationships could spell disaster for the small, open economies of the region which are highly dependent on trade and investment flows, with implications for poverty reduction and eradication.

World Bank Survey

The Caribbean’s fears are not unfounded. According to the findings of a survey published by the World Bank in its report “Withdrawal from Correspondent Baking: Where, Why, and What to do About it” in November last year, the World Bank found that “small jurisdictions with significant offshore banking activities are particularly affected by the decline of CBRs”. More ominously, according to the Report, the Caribbean Region seems to be the most affected by a decline in correspondent banking relationships.

It also noted that United States banks have been most frequently identified as withdrawing their correspondent banking services. According to the Report, the services which respondents mentioned as being the most affected by the loss of correspondent banking are “cheque clearing and settlement, cash management services, international wire transfers”, while banking authorities and local/regional banks identified trade finance.

While the report noted that the majority of respondent banks have been able to find alternative banking relationships, in some cases the time and cost of finding new relationships are significant and not always on comparable terms and conditions as with the previous correspondent bank.

The survey highlighted several reasons identified by international banks for withdrawing their correspondent banking services and noted that for large international banks, the main reasons were AML/CFT (anti-money laundering and counter-terrorism financing) and CDD/KYC (customer due diligence and know your customer) related concerns.

In concluding, the Report provided a number of recommendations for both respondent banks and correspondent banks. One of the recommendations was for correspondent banks to consider the respondent bank’s business when making their decision to end a relationship, including by outlining the reasons for withdrawal, considering giving longer notice periods and considering the use of restrictions as opposed to outright termination.

Caribbean seen as “Risky business”

For the Caribbean, the loss of correspondent banking relationships, mainly as a result of banks’ de-risking practices, is intertwined with the fight against the arbitrary blacklists the region’s offshore financial jurisdictions are constantly called on to defend themselves against. Last year, both the EU and the District of Columbia (US) published blacklists which included Caribbean countries, causing regional governments to spend consider time advocating for their removal. Either way, the net result of these arbitrary actions would appear to do little to mitigate international banks’ perception of the Caribbean as literally a “risky” place to do business. The Financial Action Task Force (FATF) has reiterated the risk-based approach to AMT/CTF on a case-by-case basis as opposed to the wholesale de-risking which many banks are doing.

The way forward

The World Bank’s report is welcomed as it has provided some empirical evidence to support the concerns of Caribbean countries and in so doing helps to place a global spotlight on this issue. The Financial Stability Board (FSB) Report to the G-20 on actions taken to assess and address the decline in correspondent banking referenced the World Bank Report. The FSB has partnered with several organisations, including the World Bank, IMF among others, to address this issue through a four-point action plan which it has articulated in its report to the G-20.

The E15 Initiative Report entitled “Strengthening the Global Trade and Investment System in the 21st Century” which was launched at World Economic Forum’s Annual Meeting at Davos this year noted that while data was scarce it would appear that developing countries are most affected by limited correspondent banking relationships and has offered some very timely proposals.

Given the potential threat this issue poses to the region’s economies, it is incumbent on Caribbean banks to continue to observe the highest regulatory standards, including on AML/CTF and CDD/KYC. The Caribbean Association of Banks (CAB) has commendably been at the forefront of advocacy in regards to the issue of correspondent banking and their continued advocacy will be important.

Former Prime Minister of Barbados and economist, Owen Arthur, at a Roundtable discussion on Correspondent Banking held in Kingston, Jamaica earlier this month has called on regional leaders to adopt coordinated regional measures to address the issue. Caribbean leaders must continue to raise the issue at the diplomatic and multilateral levels at every opportunity, and join forces with other similarly affected countries in advocating for an immediate global solution to the problem, including action on some of the proposals highlighted in the World Bank’s and E15 Initiative’s reports.

Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. The Author is not affiliated with the World Bank, the Caribbean Association of Banks or any bank. You can read more of her commentaries and follow her on Twitter @LicyLaw.