PRESENTATION TO PCOF BACKGROUND TO SOUTH AFRICA’s PRESIDENCY OF THE

1. PRESENTATION TO PCOF BACKGROUND TO SOUTH AFRICA’s PRESIDENCY OF THE FINANCIAL ACTION TASK FORCE (FATF) XVII 31 August 2005

2. What is the Financial Action Task Force (FATF)? • FATF is the International Standards-setting body to combat • Money laundering, and the • Financing of terrorism • Creates a global network of +150 countries • Aim is to: • Reduce the vulnerability of financial systems to subversion by proceeds of crime • Assist in reducing money laundering and elimination of financing of terrorism • Create tools for law enforcement to investigate & prosecute crimes involving proceeds FINANCIAL ACTION TASK FORCE

3. Benefits of this? There are many benefits from implementing an AML/ CFT system - • Prevents criminals from turning crime into profit • Prevents financial power being placed into the hands of criminals • Ensures scarce resources are not diverted from a country’s fiscus • Enables governments to fund socio-economic development • Maintains legitimacy for the integrity and stability of a country’s financial system • Consolidates and protects democracy FINANCIAL ACTION TASK FORCE

4. What are the objectives of the Financial Action Task Force (FATF)? FATF sets & monitors international AML/CFT standards - • 40 Recommendations on money laundering • 9 Special Recommendations combat financing of terrorism; • Conducts Mutual Evaluations of members; • Promotes worldwide awareness; • Encourages compliance by non-FATF members • Analyses and monitors methods and trends; and • Promotes international co-operation and coordination FINANCIAL ACTION TASK FORCE

5. But what is the Financial Action Task Force (FATF) (2) • Originally established in 1989 to prevent drug money from entering financial system • Extended in 2001 to cover financing of terrorism • Revised Recommendations in 2003 seek to prevent proceeds from wide range of crime entering financial systems and identifies non financial business (DNFBPs) FINANCIAL ACTION TASK FORCE

6. FATF & associated membership The FATF: • Today consists of 31 country members and 2 organisations • Membership by invitation only • Countries need to be “strategically important” • RSA only country for African continent • Importance of the FATF’s role was recently recognised by the UN Sec Council under Chapter VII of the Charter • New UNSC Res 1617 vs Al-qaida & Taliban “strongly urges all Member States to implement the comprehensive, international standards embodied in the FATF 40+9” FINANCIAL ACTION TASK FORCE

7. FATF membership EAG Moneyval APG MENAFATF CFATF GIABA APG GAFISUD ESAAMLG “Building a global network against money laundering & terror financing” FINANCIAL ACTION TASK FORCE

8. FSRBs and international institutions FATF-style regional bodies (FSRBs) important extension of FATF work • Endorse and seek to implement FATF standards and modus operandi • Observers at FATF meetings • Position will be taken in October 2005 – • likely “associate membership” for FSRBs which comply with standards International institutions and organisations • IMF; World Bank – cooperate on Mutual Evaluations • United Nations – CTC and UNODC • Basel; IOSCO; IAIS – alignment of standards • Interpol; Egmont Group – law enforcement FINANCIAL ACTION TASK FORCE

9. What are the priority areas for an AML/ CFT system? The 40+9 Recommendations are grouped into four broad priority categories: • Criminal justice • Preventive • Administrative • International • An effective AML/ CFT system requires the integration of these areas FINANCIAL ACTION TASK FORCE

10. Ongoing FATF Work: Mutual Evaluations 1. Mutual Evaluations • All FATF members and FSRB members undergo regular Mutual Evaluation assessments • Purpose is to monitor compliance • Provide analysis of deficiencies for remedial action • Reports impact on credit ratings and credit-worthiness • New assessment methodology adopted in 2004 • Very detailed and onerous • New round of evaluations taking place • Assessments teams consist of experts in finance, legal, law enforcement with two members of the secretariat • 2-3 results are placed before each plenary for discussion FINANCIAL ACTION TASK FORCE

11. Ongoing FATF work Mutual Evaluations (2) • Results shared with all FATF members and FSRB members • Also IMF and World Bank • Published on FATF website • Published as ROSC on Bank website FINANCIAL ACTION TASK FORCE

12. Ongoing: Working Group on Typologies 2. Typologies work • Typologies work undertaken to inform policy makers of trends and methods • Working Group meets at Plenary meetings • Annual Workshop of about 300 people • Typologies now under discussion include • Alternative remittance systems • Insurance sector vulnerabilities • Human being trafficking and illegal immigration • Methods and trends in money laundering and terrorist financing, including the use of drug trafficking related to terrorist financing • Wire transfers and terrorist financing techniques FINANCIAL ACTION TASK FORCE

13. Ongoing: Working Group on Evaluations and Implementation 3. Evaluations and Implementation of standards • Training for assessors of Mutual Evaluations • Conduct of Mutual Evaluations • Methodology issues • Sharing, Reciprocity and Publication of reports • Improved dialogue with private sector • Risk-based approach • Politically exposed persons • Beneficial ownership • Money transfer systems • Designated Non-Financial Businesses and Professionals (lawyer, accountants, estate agents, motor-car dealers, etc) FINANCIAL ACTION TASK FORCE

14. Ongoing: Working Group on Financing of Terrorism 4. Ongoing assessment of 9 Special Recommendations & their implementation • Guidance and best practice papers on SRs • SR VIII on Non-Governmental Organisations • SR VII Wire Transfers • Thresholds • E-money FINANCIAL ACTION TASK FORCE

15. Ongoing: Non Co-operating Countries and Territories (NCCTs) 5. Original list of Non Cooperating Countries and Territories (NCCTs) developed in 2001 • 23 countries originally listed • Listing means enhanced scrutiny of all transactions and financial relationships • Myanmar, Nauru and Nigeria remain listed • Countries under monitoring – Ukraine, Bahamas, Guatamala FINANCIAL ACTION TASK FORCE

16. Presidency Presidency • Rotates between countries on an annual basis • Previously: • France, Sweden, Germany Why RSA? • Developing country • Displayed seriousness in its AML/ CFT implementation • Serious player in global financial system • Cabinet appointed Prof Kader Asmal to this position from July 2005. FINANCIAL ACTION TASK FORCE

17. SA Presidency priorities for FATF XVII The SA Presidency seeks to highlight several priorities for FATF XVII • Continue the work as set out previously by FATF • Ongoing Mutual Evaluations programme SA objectives for FATF XVII: • Create space for developing country & LDC issues • Cash-based economies • Poorly developed financial sectors • Sometimes fragile governmental and institutional arrangements FINANCIAL ACTION TASK FORCE

18. SA Presidency priorities for FATF XVII (2) Proposals for FATFXVII • Clarify membership status of FATF-Style Regional Bodies • Develop and consolidate relationships with FSRBs (ESAAMLG, GIABA, EAG) • Facilitate provision of technical assistance • Provide training and sharing of information • Ongoing facilitation of membership of China and India • Integrate corruption issues into FATF standards • Emphasis on good governance and benefits that flow from this • Social/ economic costs as result of diversion of resources • Cross-reference to UN Conventions, etc in 40+9 FINANCIAL ACTION TASK FORCE

19. SA Presidency priorities for FATF XVII (2) • Typologies/ trends • Consolidation of previous work • Human trafficking • wire transfers • cash couriers • Introduction of • Trade-based money laundering • customer due diligence practice and • trust & company service providers. • Plenary meeting in Cape Town in February 2006 • All of this is no small task! FINANCIAL ACTION TASK FORCE

20. Summary • The work of the FATF has become increasingly well-known and important around world • Standards (40+9) have become integrated into the overall monitoring & supervision of a country’s financial systems • Increasing global co-operation and sharing of information • RSA can play leading role: • Liaising and integrating FSRBs into system • Raising issues of Developing and Less Developed Countries • Another example of RSA’s integration into the global financial and trading system. FINANCIAL ACTION TASK FORCE

21. THANK YOU31 AUGUST 2005 FINANCIAL ACTION TASK FORCE

23. Annexures FINANCIAL ACTION TASK FORCE

24. FATF Membership • Membership of 31 countries Argentina; Australia; Austria; Belgium; Brazil; Canada; Denmark Finland; France; Germany; Greece; Hong Kong, China; Iceland; Ireland; Italy; Japan; Luxembourg; Mexico; Netherlands; New Zealand; Norway; Portugal; Russian Federation; Singapore; South Africa; Switzerland; Spain; Sweden; Turkey; United Kingdom; United States. • 2 regional organisations: European Commission & Gulf Co-operation Council. • Newest members Russia & South Africa (both June 2003); • Peoples Republic of China and India remain to become members FINANCIAL ACTION TASK FORCE

25. FATF- style regional bodies Moneyval- European Union countries EAG- East Asian Group APG MENAFATF- Middle East & North Africa FATF CFATF- Caribbean FATF GIABA- Groupe Inter-gov d’Action contre le Blanchiment en Afrique APG- Asia Pacific Group GAFISUD- South American FATF ESAAMLG Eastern & Southern Africa AML Group Building a global network against money laundering & terror financing FINANCIAL ACTION TASK FORCE

26. Typologies 1. Avoidance of customer due diligence procedures in deposit-taking institutions • Study on how laundered money today enters the financial system • Deposit-taking are frontline defence against placement of proceeds of crime • Seek to identify areas of vulnerability with due diligence procedures; • Identify new methods and trends in placement techniques • eg. ID theft and fraud; fronting; trusts; shells; unaffiliated ATMs, etc FINANCIAL ACTION TASK FORCE

27. Typologies 2. Trust and Company service providers • Tightening of financial systems has meant criminals seek alternative means to disguise and convert proceeds • Shell corporations used with complex ownership structures for simple purpose or as multipurpose entities. • Identify areas of vulnerability and evidence of malpractice by shell companies • Use of secrecy legislation • Supervisory and monitoring aspects • Beneficial ownership and control of legal persons • Areas of greatest misuse etc FINANCIAL ACTION TASK FORCE

28. Typologies: 3. Trade based money laundering • Financial sector entities increasingly subject to AML/ CFT measures • Thus evidenced migration into non-financial sectors • Study to assess use of trade based systems for ML/ FT & address shortcomings • Use of trade & customs data better • Complement wire remittances work being done • Facilitate broad policy development: customs fraud; increase revenues; quality of trade stats • Involve a number of countries (FATF & non-FATF) FINANCIAL ACTION TASK FORCE

29. RSA Mutual Evaluation 2003 SA first Mutual Evaluation conducted for membership in 2003 • Deficiencies identified by FATF included: • Absence of measures to combat the financing of terrorism • Beneficial ownership of trusts • Supervisory issues • Implementation and prosecutions • Since then POCDATARA has incorporated CFT measures • Draft legislation in preparation on AML/CFT role for supervisory bodies, & provisions re beneficial ownership • Extensive implementation taking place – consolidation FINANCIAL ACTION TASK FORCE

30. Priority Areas for AML/ CFT system Criminal Justice • R1 and SRI: Criminalise money laundering and financing of terrorism • R3 and SRIII: Freezing and forfeiture of proceeds of crime and terrorist related property FINANCIAL ACTION TASK FORCE

31. Priority Areas for AML/ CFT system Preventive measures Customer due diligence • R 5: Client identification • R6: Systems in financial institutions to deal with PEP’s • R10: Keeping records of transactions Reporting • R13 and SRIV: Reporting of suspicious transactions on money laundering and terrorist financing • R11: Attention to complex transactions • R4: Relax financial institution secrecy • R14: Protect persons making reports FINANCIAL ACTION TASK FORCE

32. Priority Areas for AML/ CFT system Administrative • R27: Mandate for investigating authorities • R28: Powers of investigating authorities to obtain documents and information • R27: Mandate for investigating authorities • R28: Powers of investigating authorities to obtain documents and information • R23: Supervision of financial institutions • R26: Establish a Financial Intelligence Unit (FIU) FINANCIAL ACTION TASK FORCE

33. Priority Areas for AML/ CFT system International • R35 and SRI: Ratify UN Conventions and implement UNSC Resolutions • R36 to 39: Offer mutual legal assistance and extradition. • R40: Other forms of co-operation FINANCIAL ACTION TASK FORCE