AML/CFT Regulation in Light of Global Financial Crisis

1. AML/CFT Regulation in Light of Global Financial Crisis Presented by Muhammad Baasiri SIC Secretary US-MENA PSD Chairman MENAFATF 1st Year President 1st Annual Compliance & AML Seminar Riyadh, Kingdom of Saudi Arabia 24th, 25th March 2009

2. Outline • Reasons behind Global financial Crisis • Impact on AML in light of Global financial Crisis • Challenges facing AML in Light of Global Financial Crisis • Accountability for the Global Financial Crime, Rethinking/redefining of AML • Optimal Allocation of Human & Monetary Resources • Cooperation between Developed & Developing countries • Adequate priority to AML Program • Regulatory framework to prevent future financial crisis • Conclusion

3. Reasons behind Global financial Crisis • Collapse of US-sub-prime mortgage market •  Poor judgment by borrowers and/or lenders, • Speculation & overbuilding during the boom period, • Complex financial products & Risky mortgage products, • Inaccurate Credit Rating • High personal and corporate debt levels, • Central Banks’ restrictive monetary policies in a number of countries, • Governments regulation or the lack of • Stock market volatility, downwardcurrency values • Moral Hazard, abundance of greed, & corruption

4. Impact on AML/CFT in light of Current Financial Crisis • Significant investment in AML systems and controls due to increase in transaction monitoring and staffing • High Demand for forensic services, fields of fraud & litigation • More risk-based AML programs, • Restructuring AML regime by centralization or outsourcing functions • Advanced AML software systems

5. Challenges facing AML in Light of Global Financial Crisis • Accountability for the Global Financial Crime, Rethinking/redefining of AML • Optimal Allocation of Human & Monetary Resources • Maintaining International Cooperation • Adequate priority to AML Program • Regulatory framework to prevent future financial crisis

6. I. Accountability for Global Financial Crisis • Banking Regulators; who are guilty of systematic failure to spot the early signs of dangerous dependence on inter-bank funding, heavy exposure to mortgage debt, soaring house price inflation, & complex financial products • Hence The Role of banking Regulators; • To be prudent by protecting depositors, • To monitor systemic risk reduction of disruption from adverse trading conditions for banks • To Avoid misuse of banks for criminal purposes (securities fraud, stock manipulation schemes, embezzlement by stockbrokers , corruption, misuse of power & laundering the proceeds of crime) • To Protect banking confidentiality (even from Insider trading) • Credit allocation - to direct credit to favored sectors

7. Accountability for Global Financial Crisis (continued) • Corporate CEO’s; guilty of Greed that clouds judgment (excessive pay, bonuses, & preferred shares) • Credit Rating agencies; who faced inherent conflict of interest with many of their clients issuing securities rated by their analysts, • Investors; guilty of wanting all with no leverage to back up their debts • Lenders: failed to make sure borrowers had a job or income to cover for their loans

8. Need to Redefine AML • In light of financial Crisis, comes the need to have a broader understanding of money laundering, what constitutes illicit money, how they are concealed, & introduced into the financial system, which channels are currently used, how they are invested • To expand AML predicate offenses to include all the designated categories of offences such as Insider trading, market manipulation, corruption & bribery

9. II.Optimal Allocation of Human & Monetary Resources • Global Economies are in recession, consequently • Limited, Depleted & Expensive financial & human resources available for AML, hence • Need to intelligently allocate resources in AML regime, through • Outsourcing or centralization of AML functions or through • Training, Raising Awareness as criminals are constantly evolving and • Increasing sophistication of law enforcement professionals such as AML experts, fraud examiners, compliance officers, forensic accountants, experienced professionals in money laundering investigations

10. III.Maintaining International Cooperation • Despite the lack of enough trust between countries and regulators, they should be looking at: • Exchanging intelligence, expertise & lessons learned, • Stepping up assistance to jurisdictions that are struggling to establish their regimes, • Implementing streamlined procedures in freezing, confiscating, & returning the ML assets • Helping develop technical assistance programs • Forge consensus on global strategies that can adequately serve the different needs of the global market?

11. IV.Awarding adequate priority to AML Regime • Banks and other financial institutions have to take a more holistic approach to AML, • Improved controls – Existing and expected evolving regulatory requirements demand better financial controls • Need to be more proactive to identify and catch illicit funds • High Fraud level in economic crisis, places additional pressure on banks & financial institutions to have transparent governance, adequate screening of clients, proper KYC forms, and AML regime in place

12. V.Preventive Regulatory Framework • Implement New regulatory framework to prevent future similar financial crisis • Establish appropriate preventive measures to mitigate against such huge losses, reform-measures • Effective and comprehensive reform of the international monetary & financial systems • Enhanced regulation through adequate standards, transparency, accountability & oversight • Improving risk management practices • Improving valuation standards of complex financial instruments

13. Conclusion • During economic downturn, adequate screening systems become more important . Fraud tends to gather pace in a credit crunch & has much greater impact during crisis. • With white collar crime increasing and regulators handing down penalties against both companies and individuals for anti-money laundering lapses, the need for systematic, rigorous screening of customer databases has never been more important.”

14. Thank You