By FATF President Paul Vlaanderen at the XVI Caribbean Financial Action Task Force (CFATF) Council of Ministers Meeting, Willemstad, Curaçao, Netherlands Antilles
Madame Prime Minister, Madame Vice Prime Minister and CFATF Chair, Madame Governor of Curacao, Madame outgoing CFATF Chair, Ministers, Executive Director, distinguished delegates and friends,
It is an honour for me to represent the FATF here at your meeting. Not only is it special for any FATF President to be able to attend a meeting of the oldest FSRB, it is an additional pleasure for an FATF President from the Netherlands to being able to speak the CFATF meeting that forms the start of the Netherlands Antillean Presidency of the CFATF.
The title of my contribution is “the need for enhanced transparency”; that is important and I will get to it. But first I like to share with you the need for further investing in the relations between sister-organisation CFATF and mother-organisation FATF. We have to work to get closer to each other, and the “dutch connection”, the coinciding chair positions, may give us an opportunity. Further improving relations with all FATF sister organisations is especially important this year given the challenges we all are facing in the worst economic and financial crisis in recent history. While some say there are signs that the financial crisis may be easing, the world is still trying to determine what the causes were. It is clear that the enormous growth in the size and complexity of the financial sector over the past 2 decades have been highly important contributors to the situation we are in today.
Global AML/CFT Network
In this same period, that is the past 20 years, the FATF and its extended family of FSRBs were not only created, but have evolved substantially as well:
Its mandate has grown to cover not only drug-related money laundering but also, as a consequence of 9/1, terrorist financing and, more recently, proliferation financing.
In these two decades the FATF-network has expanded to include 35 jurisdictions and 8 regional organisations. Last week I had the honour to preside over the plenary decision to admit Korea as the 35th member of FATF. India, now an observer, is working towards full membership as well.
At the same time, through the establishment of CFATF and the seven other FSRBs, there are now more than 180 jurisdictions working together to fight money laundering and terrorist financing. This is a ‘big family’ and an unprecedented achievement in international cooperation!!!
The FATF-family not only sets world-wide AML/CFT standards in its area of expertise; it also monitors compliance with these standards on a global basis: here FATF members work together with its FSRB sister organisations and international bodies like the IMF and the World Bank. Unique in international co-operation, these global standards are maintained through public action, including countermeasures when needed. Transparency and accountability are the key driving principles. This process is stringent but fair and our experience has shown us its effectiveness.
With your permission Madam Chair, I would like to touch upon a number of issues that I think are of mutual concern and interest. These are all current FATF priorities. First there is:
The need for Enhanced Transparency
Vital parts of the FATF standards are linked to transparency. The financial crisis reinforces the need to ensure that those parts of the standards are fully effective. It can therefore be expected that we will see more on this in the post-crisis environment. There are currently three transparency related issues that are already under review within FATF:
Madame Prime Minister, Madame Vice Prime Minister and CFATF Chair, Madame Governor of Curacao, Madame outgoing CFATF Chair, Ministers, Executive Director, distinguished delegates and friends,
It is an honour for me to represent the FATF here at your meeting. Not only is it special for any FATF President to be able to attend a meeting of the oldest FSRB, it is an additional pleasure for an FATF President from the Netherlands to being able to speak the CFATF meeting that forms the start of the Netherlands Antillean Presidency of the CFATF.
The title of my contribution is “the need for enhanced transparency”; that is important and I will get to it. But first I like to share with you the need for further investing in the relations between sister-organisation CFATF and mother-organisation FATF. We have to work to get closer to each other, and the “dutch connection”, the coinciding chair positions, may give us an opportunity. Further improving relations with all FATF sister organisations is especially important this year given the challenges we all are facing in the worst economic and financial crisis in recent history. While some say there are signs that the financial crisis may be easing, the world is still trying to determine what the causes were. It is clear that the enormous growth in the size and complexity of the financial sector over the past 2 decades have been highly important contributors to the situation we are in today.
Global AML/CFT Network
In this same period, that is the past 20 years, the FATF and its extended family of FSRBs were not only created, but have evolved substantially as well:
Its mandate has grown to cover not only drug-related money laundering but also, as a consequence of 9/1, terrorist financing and, more recently, proliferation financing.
In these two decades the FATF-network has expanded to include 35 jurisdictions and 8 regional organisations. Last week I had the honour to preside over the plenary decision to admit Korea as the 35th member of FATF. India, now an observer, is working towards full membership as well.
At the same time, through the establishment of CFATF and the seven other FSRBs, there are now more than 180 jurisdictions working together to fight money laundering and terrorist financing. This is a ‘big family’ and an unprecedented achievement in international cooperation!!!
The FATF-family not only sets world-wide AML/CFT standards in its area of expertise; it also monitors compliance with these standards on a global basis: here FATF members work together with its FSRB sister organisations and international bodies like the IMF and the World Bank. Unique in international co-operation, these global standards are maintained through public action, including countermeasures when needed. Transparency and accountability are the key driving principles. This process is stringent but fair and our experience has shown us its effectiveness.
With your permission Madam Chair, I would like to touch upon a number of issues that I think are of mutual concern and interest. These are all current FATF priorities. First there is:
The need for Enhanced Transparency
Vital parts of the FATF standards are linked to transparency. The financial crisis reinforces the need to ensure that those parts of the standards are fully effective. It can therefore be expected that we will see more on this in the post-crisis environment. There are currently three transparency related issues that are already under review within FATF:
- The first issue relates to customer due diligence obligations and beneficial ownership. One of the main principles of the FATF standards is the obligation for financial institutions to identify their customers and underlying beneficial owners. The FATF is revisiting its recommendations to consider whether the current standard still is the best tool for providing maximum customer transparency.
- This question of customer due diligence is closely related to the second issue, that deals with the transparency of legal persons and legal arrangements. The review of the recommendations dealing with this topic will seek to improve the transparency of such persons and arrangements. That should provide authorities with better and more timely access to beneficial ownership information.
- Finally, financial institution secrecy laws and cross-border exchange of information will also be looked at. The FATF will examine whether certain types of laws may inhibit the implementation of the FATF recommendations.
The examination will also consider potential obstacles to cross-border exchange of information within financial services groups and between regulators. The latter issue is of course also linked to the broader issue of international co-operation between regulators, FIUs and other competent authorities. That subject will be examined separately. Ensuring that there is effective and efficient exchange of information is a key objective of the FATF standards.
These three issues will be addressed to ensure that no customer relationship, no legal entity or arrangement and no jurisdiction can provide a cover of secrecy for money launderers and terrorist financiers.
The G20 leaders in their Pittsburg conclusions also referred to the need for the FATF to give higher priority to transparency. They did so in the context of their call to more actively fight corruption.
“We ask the FATF to help detect and deter the proceeds of corruption by prioritizing work to strengthen standards on customer due diligence, beneficial ownership and transparency”.
So the direction of our work is getting more clear and focussed!
I am sure that you will agree with me that a lack of transparency has already caused enough damage, also in this region. Financial institutions can bring relatively small jurisdictions to de-facto bankruptcy. Some say that a lack of transparency was a choice of some jurisdictions to attract business; others argue that the policies of these jurisdictions amounted to naivety or lack of knowledge. However, whatever may have been the case, and I do pass any judgement on either view, I hope we can work together to ensure that illegitimate lack of transparency in a wider sense of the word is no longer available to persons, entities, institutions and jurisdictions.
Let me now say a few words about the
Mutual Evaluation Process
Assessing members against the FATF Standards is one of the core tasks of FATF and the FSRB’s.
Every jurisdiction that has been assessed knows how resource intensive the evaluation process is. Once the assessment is completed, it is tempting to move other pressing duties immediately. However! We need to remember that the effort to implement AML/CFT standards does not stop with the completion of an evaluation. Afterwards, there needs to be effective follow-up: that means that governments of all jurisdictions are required to work hard to remedy any weaknesses identified in these country-examinations. This is an integral part of FATF’s evaluation system. This is costly, I realise that: but there is a flipside to the coin: Bankpresident Tromp referred to that already on Wednesday. We know that the compliance level with the FATF recommendations influences the financial sector of a country. This encourages jurisdictions to enhance compliance with the FATF Standards. Higher compliance means lower corruption and thus, lower cost to the economy. Higher compliance also means lower risks and thus better terms for the financial sector on the global financial markets, which is positive for the economy and investment climate of a country. These are strong incentives for countries to enhance their compliance: it pays to do well!
Having said that, it is understood that not all countries in the FATF family are in the position to comply with sometimes far reaching obligations. Therefore, I encourage CFATF to benefit from the FATF Guidance Paper on Low Capacity Countries. Although not many CFATF members would fit the definition of a low capacity country, the main principles of that paper – commitment, prioritisation, planning and implementation – are essential to any country that is working towards implementing the FATF Standards effectively.
Since you have almost completed your third round of mutual evaluations, you may wish to devote your scarce resources to an effective and thorough follow-up of the recommendations made in your current round of mutual assessment reports. After that you could commence a fourth round, simultaneously with the FATF.
Within the FATF, we are currently resetting the goal posts for the fourth round of mutual evaluations. In that context, we are considering a number of issues related to the current standards; apart from the three transparency related issues just discussed, there are also improved international cooperation and an enhanced focus on effectiveness. Two working groups have started working and will work well into the next FATF year.
I think I should say something about International Cooperation, an issue that is probably high, or highest on your, and our, agenda:
International Co-operation
Obviously, the existence of peer pressure generated by a mutual evaluation and its follow up is important in working toward full implementation of AML/CFT standards. But sometimes – as experience has shown – peer pressure and regular follow up processes are not enough. Some countries achieve insufficient progress towards compliance, sometimes even despite the technical assistance that is provided. The FATF has dealt with those countries in the past, especially with those jurisdictions that lacked political commitment to implement the FATF Standards. I do not envy my predecessors that had to face jurisdictions that were subject to FATF measures during the NCCT-process. At the same time I do realise that many of those formerly listed jurisdictions are now front-runners in their regions. This shows that publicly pointing out problems – when necessary – followed by a close engagement with affected jurisdictions can bring very good results and thus reinforce the global network for combating money laundering and terrorist financing.
Today, the FATF has set up the International Co-operation Review Group (ICRG) and a new process that is designed to notably engage the ‘unwilling’ and those jurisdictions that pose a real risk to the international financial system. The ICRG process is designed to bind FATF and FSRB members that show effective commitment to the standards against those that evade their international obligations. The time and money that you spend on creating an effective AML/CFT system in your country is wasted if your neighbour remains a safe haven for criminals. The ICRG process is focussed on specific threats and specific risk in specific countries. If need be these jurisdictions may be publicly identified by the FATF Plenary. The G20 leaders concluded in Pittsburg in this context: “We welcome the progress made by the FATF in de fight against money laundering and terrorist financing and call upon the FATF to issue a public list of high risk jurisdictions by February 2010”.
The second role of the ICRG is to work with those jurisdictions to remedy the shortcomings underpinning the judgement of the FATF Plenary. That means that there could be a focussed follow up process between the ICRG and a specific jurisdiction. If all evaluation reviews and regular follow ups are conducted properly, there should be no duplication or conflict within the FATF family and between the follow up processes.
Financial crisis
I already spoke about the need to enhance transparency in the context of the global financial and economic crisis. That crisis has affected most of the countries in the world, undermined financial markets, with direct consequences on societies and the world’s economy at large. It presents specific new challenges and opportunities to the FATF.
In February 2009, the FATF launched an initiative to evaluate the impact of the global financial and economic crisis on AML/CFT.
The G20 Leaders asked FATF in April to ‘’revise and reinvigorate the review process for assessing compliance by jurisdictions with AML/CFT standards’’. They ‘’called upon the FSB and the FATF to report to the next G20 Finance Ministers and Central Bank Governors’ meeting on adoption and implementation by countries’’.
In August, the FATF sent a report to the G20 Ministers of Finance and Central Bank Governors in preparation for their meeting early September. This report was welcomed and found its way into the Pittsburg meeting of G20 leaders. They concluded on corruption and international cooperation as I just quoted to you.
The role of FSRBs
Although it has been said many times, it is necessary to continue emphasising that the FSRBs have an important role to play. It seems impossible to envisage an FATF as geographically comprehensive and effective as it is today without FSRB member jurisdictions engaging in the fulfilment of our common mandate and showing ownership of their regional body. The FATF membership has acknowledged the important work that is done by FSRBs, and adapted its procedures to allow a larger input from FSRBs and their membership. As I am sure you all know, CFATF’s enhanced status as an Associate Member of the FATF means that
These three issues will be addressed to ensure that no customer relationship, no legal entity or arrangement and no jurisdiction can provide a cover of secrecy for money launderers and terrorist financiers.
The G20 leaders in their Pittsburg conclusions also referred to the need for the FATF to give higher priority to transparency. They did so in the context of their call to more actively fight corruption.
“We ask the FATF to help detect and deter the proceeds of corruption by prioritizing work to strengthen standards on customer due diligence, beneficial ownership and transparency”.
So the direction of our work is getting more clear and focussed!
I am sure that you will agree with me that a lack of transparency has already caused enough damage, also in this region. Financial institutions can bring relatively small jurisdictions to de-facto bankruptcy. Some say that a lack of transparency was a choice of some jurisdictions to attract business; others argue that the policies of these jurisdictions amounted to naivety or lack of knowledge. However, whatever may have been the case, and I do pass any judgement on either view, I hope we can work together to ensure that illegitimate lack of transparency in a wider sense of the word is no longer available to persons, entities, institutions and jurisdictions.
Let me now say a few words about the
Mutual Evaluation Process
Assessing members against the FATF Standards is one of the core tasks of FATF and the FSRB’s.
Every jurisdiction that has been assessed knows how resource intensive the evaluation process is. Once the assessment is completed, it is tempting to move other pressing duties immediately. However! We need to remember that the effort to implement AML/CFT standards does not stop with the completion of an evaluation. Afterwards, there needs to be effective follow-up: that means that governments of all jurisdictions are required to work hard to remedy any weaknesses identified in these country-examinations. This is an integral part of FATF’s evaluation system. This is costly, I realise that: but there is a flipside to the coin: Bankpresident Tromp referred to that already on Wednesday. We know that the compliance level with the FATF recommendations influences the financial sector of a country. This encourages jurisdictions to enhance compliance with the FATF Standards. Higher compliance means lower corruption and thus, lower cost to the economy. Higher compliance also means lower risks and thus better terms for the financial sector on the global financial markets, which is positive for the economy and investment climate of a country. These are strong incentives for countries to enhance their compliance: it pays to do well!
Having said that, it is understood that not all countries in the FATF family are in the position to comply with sometimes far reaching obligations. Therefore, I encourage CFATF to benefit from the FATF Guidance Paper on Low Capacity Countries. Although not many CFATF members would fit the definition of a low capacity country, the main principles of that paper – commitment, prioritisation, planning and implementation – are essential to any country that is working towards implementing the FATF Standards effectively.
Since you have almost completed your third round of mutual evaluations, you may wish to devote your scarce resources to an effective and thorough follow-up of the recommendations made in your current round of mutual assessment reports. After that you could commence a fourth round, simultaneously with the FATF.
Within the FATF, we are currently resetting the goal posts for the fourth round of mutual evaluations. In that context, we are considering a number of issues related to the current standards; apart from the three transparency related issues just discussed, there are also improved international cooperation and an enhanced focus on effectiveness. Two working groups have started working and will work well into the next FATF year.
I think I should say something about International Cooperation, an issue that is probably high, or highest on your, and our, agenda:
International Co-operation
Obviously, the existence of peer pressure generated by a mutual evaluation and its follow up is important in working toward full implementation of AML/CFT standards. But sometimes – as experience has shown – peer pressure and regular follow up processes are not enough. Some countries achieve insufficient progress towards compliance, sometimes even despite the technical assistance that is provided. The FATF has dealt with those countries in the past, especially with those jurisdictions that lacked political commitment to implement the FATF Standards. I do not envy my predecessors that had to face jurisdictions that were subject to FATF measures during the NCCT-process. At the same time I do realise that many of those formerly listed jurisdictions are now front-runners in their regions. This shows that publicly pointing out problems – when necessary – followed by a close engagement with affected jurisdictions can bring very good results and thus reinforce the global network for combating money laundering and terrorist financing.
Today, the FATF has set up the International Co-operation Review Group (ICRG) and a new process that is designed to notably engage the ‘unwilling’ and those jurisdictions that pose a real risk to the international financial system. The ICRG process is designed to bind FATF and FSRB members that show effective commitment to the standards against those that evade their international obligations. The time and money that you spend on creating an effective AML/CFT system in your country is wasted if your neighbour remains a safe haven for criminals. The ICRG process is focussed on specific threats and specific risk in specific countries. If need be these jurisdictions may be publicly identified by the FATF Plenary. The G20 leaders concluded in Pittsburg in this context: “We welcome the progress made by the FATF in de fight against money laundering and terrorist financing and call upon the FATF to issue a public list of high risk jurisdictions by February 2010”.
The second role of the ICRG is to work with those jurisdictions to remedy the shortcomings underpinning the judgement of the FATF Plenary. That means that there could be a focussed follow up process between the ICRG and a specific jurisdiction. If all evaluation reviews and regular follow ups are conducted properly, there should be no duplication or conflict within the FATF family and between the follow up processes.
Financial crisis
I already spoke about the need to enhance transparency in the context of the global financial and economic crisis. That crisis has affected most of the countries in the world, undermined financial markets, with direct consequences on societies and the world’s economy at large. It presents specific new challenges and opportunities to the FATF.
In February 2009, the FATF launched an initiative to evaluate the impact of the global financial and economic crisis on AML/CFT.
The G20 Leaders asked FATF in April to ‘’revise and reinvigorate the review process for assessing compliance by jurisdictions with AML/CFT standards’’. They ‘’called upon the FSB and the FATF to report to the next G20 Finance Ministers and Central Bank Governors’ meeting on adoption and implementation by countries’’.
In August, the FATF sent a report to the G20 Ministers of Finance and Central Bank Governors in preparation for their meeting early September. This report was welcomed and found its way into the Pittsburg meeting of G20 leaders. They concluded on corruption and international cooperation as I just quoted to you.
The role of FSRBs
Although it has been said many times, it is necessary to continue emphasising that the FSRBs have an important role to play. It seems impossible to envisage an FATF as geographically comprehensive and effective as it is today without FSRB member jurisdictions engaging in the fulfilment of our common mandate and showing ownership of their regional body. The FATF membership has acknowledged the important work that is done by FSRBs, and adapted its procedures to allow a larger input from FSRBs and their membership. As I am sure you all know, CFATF’s enhanced status as an Associate Member of the FATF means that
- all CFATF members have access to all FATF documents,
- all CFATF members have the right to provide written input on all documents just like FATF members,
- all CFATF members have the right to attend all FATF working groups and
- up to five CFATF members can attend our plenary meetings.
Madame Chair, in your work programme for this and next year you call on all CFATF members to fully use the possibilities of the Associate membership status of CFATF. I fully support that call, as it is our experience that in practice, the input from FSRB members could be higher. In my view, the global standards can only be truly global if jurisdictions from FATF and FSRBs provide substantial input into the decision making process. I understand the difficulties that countries face but as the French say: noblesse oblige! As it is one of the priorities of my Presidency to further enhance the role of FSRBs, I consider organising a FATF – FSRBs Presidents meeting in Amsterdam in June next year, back to back with the Plenary. At such a meeting, we could discuss issues of common concern to FATF as well as to FSRB’s.
Conclusion
Madame Chair, I started my address expressing my satisfaction that I, as a Dutch FATF President, can speak at the beginning of the Dutch Antillean CFATF chairmanship. I do not know if this is the first step of the Kingdom towards world supremacy in the area of AML/CFT, or just a sign of our common commitment to this good cause. Ik wil u graag hartelijk danken voor de uitnodiging om hier te komen spreken en ik wens u alle succes toe tijdens u voorzitterschap. (In any case I would like to thank you for your invitation to speak here today and I wish you all the success for your chairmanship during the next 12 months).
Masha danki pa boso atencion / thank you for your attention.
FATF President
Conclusion
Madame Chair, I started my address expressing my satisfaction that I, as a Dutch FATF President, can speak at the beginning of the Dutch Antillean CFATF chairmanship. I do not know if this is the first step of the Kingdom towards world supremacy in the area of AML/CFT, or just a sign of our common commitment to this good cause. Ik wil u graag hartelijk danken voor de uitnodiging om hier te komen spreken en ik wens u alle succes toe tijdens u voorzitterschap. (In any case I would like to thank you for your invitation to speak here today and I wish you all the success for your chairmanship during the next 12 months).
Masha danki pa boso atencion / thank you for your attention.
FATF President
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