Egypt Experience in adopting AML/CTF Measures and Challenges

1. Egypt Experience in adopting AML/CTF Measures and Challenges Judge Hesham Ragab Egyptian FIU

2. Structure Of Presentation • Legal Frame work of Egyptian AML system • Measures Taken by Supervisors and Financial institutions others , to implement the enacted frame work. • Challenges of adopting AML/CTF • Legal • Financial institutions • FIU • LEA • CFT Challenges with the AML context In Egypt Judge Hesham Ragab Egyptian FIU

3. Reasons Behind listing Egypt as a NCCT • The absence of a separate comprehensive law. • Absence of detailed rules to identify financial institutions subject to AML and their duties. • Absence of independent FIU • Absence of proper customers identification Rules. • Bank secrecy law inflexibility Judge Hesham Ragab Egyptian FIU

4. Legal and Regulatory frame work • legislative Frame work • AML law n 80 May 2002(Challenges) • Presidential Decree No. 164 issued June 2002 regarding the FIU • Implementing Regulations June 2003 • Regulations issued by Supervisory authorities • Regulations issued by Financial institutions Judge Hesham Ragab Egyptian FIU

5. Main features of the law • Defining new terms (ML, financial institutions, assets. • Listing Predicate offences • Criminalizing ML laundering offences • Establishing FIU (Council of Trustees (challenges) • STRs became an exception to secrecy law Judge Hesham Ragab Egyptian FIU

6. Main features of the law (2) 1- Setting the financial institution obligations KYC Reporting STRs Keeping records 2- Criminal punishment in case of violation of those rules. Judge Hesham Ragab Egyptian FIU

7. Main features of the law (3) • Enhancing international criminal cooperation. • Encouraging financial institution to report. (no criminal liability or civil..) • Encouraging criminals to report the crime (article 17) in accordance to international conventions (UN convention against transnational organized crimes) Judge Hesham Ragab Egyptian FIU

8. The Executive regulations • Implementing regulations comprise 7 chapters as follows: • Chapter 1: Definitions • Chapter 2: FIU • Chapter 3: board of trustees • Chapter 4 : Supervisory Entities • Chapter 5: Financial institutions • Chapter 6: Training • Chapter 7: International Cooperation. Judge Hesham Ragab Egyptian FIU

9. Major Highlights of the Executive regulation FIU • (Receiving, analyzing STRs) • FIU is empowered to Arrange training programs for all relevant entities. • FIU is under obligation to arrange awareness programs. Judge Hesham Ragab Egyptian FIU

10. Executive regulations Supervising Authorities (Key player) • Article 21 puts supervising authorities under obligation to co-ordinate with FIU • Periodic inspection • Regulatory authorities are required to assign a Contact officer to be responsible of all relevant ML issues • Standards of KYC rules. (homework) • Standards of suspicion. Judge Hesham Ragab Egyptian FIU

11. Phase 2 :Implementation of legal frame work Action taken by Financial Sector • Appointing a compliance officer • Setting their own regulations and manuals for combating ML (every single bank should do it on his own??? • KYC, KYB, Record keeping , internal systems to detect any unusual transactions. • Reporting system starts (STR Forms) • Training plan (starting training) (who provide training)( who needs training) (level of training) • Updating Customer ID plan (Forms) Judge Hesham Ragab Egyptian FIU

12. Phase 2 :Implementation of legal frame work Action taken by supervisory authorities • Comprehensive periodical examination Plan • For all banks once a year which includes all areas • Special examination programs (Standards) • Questionnaire and a special evaluation sheet • Expanding numbers of AML examiners • Special Training for examiners (Why!!!) • Follow up with examination (corrective measures) Judge Hesham Ragab Egyptian FIU

13. E.G of CBE examination check list • AML manuals was circulated to the examined branches • Updates took place with regards to customers • Classifying customers on a risk basis approach • Training of the staff in AML issues • Existing systems used for producing periodical reports (daily, weekly …etc) on unusual transactions exceeding threshold • Suspicious transaction reports filed by branches to MLRO at head quarters. • Follow up and measures taken by the Headquarter MLRO to ensure Compliance>>> • Existing systems used for keeping records and registers at branches. • Examining samples of different transactions …. Judge Hesham Ragab Egyptian FIU

14. FIU Role \Implementation phase • Models and Forms issued by the unit to implement the law and help financial institutions. (STRs models, annual MLRO report forms) Judge Hesham Ragab Egyptian FIU

15. Number of STRs in 2nd year of implementation • End February 2004 was 325 STR • 850 STR at end of January 2005 • Financial institution 748 • Supervisory Authorities 38 • Individuals 35 • LAE 16 • Counter FIUs 13 • Conviction 2 • Inquiries in public prosecution (10) Judge Hesham Ragab Egyptian FIU

16. Phase 2 LEA • Second phase/ Implementation plan • Law enforcement agencies e.g ministry of interior (special task force AML units) • Appointing a contact person with FIU • Training for competent officers • Reporting ML Crimes during its normal course of work. • Investigating STRs sent by the unit (Setting mechanisms) Judge Hesham Ragab Egyptian FIU

17. Challenges facing Financial institutions (1) • KYC rules • Excessive requirements of KYC rules • Different bank approaches (Role of FIU and regulators) • Playing detectives role • Customers resistance • Regulators need to raise awareness • Coaching staff how to handle issues • Updating current customers information plans • Classification of customers and risk based approach. (low, high, medium) • e.g. with respect to updating customer ID Judge Hesham Ragab Egyptian FIU

18. Challenges facing Financial institutions (2) • Difference between Source of funds and source of every single transaction. • Situation in dealing with real time suspected transactions. ( international wiring) (ist stages of applying the law. • Staff need to learn that their main responsibility is to report and not to ?????? • Avoid tipping off Judge Hesham Ragab Egyptian FIU

19. Challenges facing Financial institutions (3) • Independence of ML officers (seniority) (annual report) (ML officers club meets FIU) • Feedback of STRs problems!!! • Requesting provisional measures • Referring investigation to judicial authorities • Final verdicts Judge Hesham Ragab Egyptian FIU

20. Challenges Facing FIU and LEA • Trained Staff with financial background • Dealing with banks questions (regarding STRs) • Coordination between LEA and banks and FIU (understanding The banks culture) • Building trust (mixed training courses) • How LEA should deal with banks STRs (Traditional approach) Judge Hesham Ragab Egyptian FIU

21. Legal challenges • The question of proof (U.S history) • Nature of ML Crimes (complex forms) • Prosecution office and how to handle ML cases in a efficient way Prosecution office issued a guidelines of ML cases inquiries and prosecution. • Who is the ultimate victim in complex ML cases????? Judge Hesham Ragab Egyptian FIU

22. International Cooperation Challenges • Problems of normal international channels (request of information through official channels) • Egmont group function and perceived role in future. (operational level) • 94 FIU December 2004 • Terrorist financing became a requirement to be a member. • MOUs Judge Hesham Ragab Egyptian FIU

23. Challenges dealing with Terrorist financing • Process to build effective CTF systems starts by asking your self these questions??? • What is the link between terrorist financing and ML??? • Do Terrorist organizations launder its money and if so WHY? • What are similarities between ML and Terrorist financing and differences? • Why should the AML FIUs be involved in this issue? • Was there good reasons to deal with both issues under the ambit of AML FIUs? Judge Hesham Ragab Egyptian FIU

24. FATFFinancial action Task Force • FATF Paris 1989 • 1990 40 recommendations, reviewed in 1996. • 2001 FATF mission was extended to TF and issued the 8 Recommendations. • 2004 the FATF mission was extended to 2012 Judge Hesham Ragab Egyptian FIU

25. Sources of Terrorist funds • Countries • Charities whether or not they know or don’t…. • Self finance • Investing in legitimate business • Investing in Crimes (Narcoterrorist) Judge Hesham Ragab Egyptian FIU

26. Major international Instruments in Combating Terrorist financing • FATF 40 recommendations 1990. • International Convention for the Suppression of the Financing of Terrorism.(1999) France initiative.. • UN Resolution 1373 (After Sept 11) (chapter 7) • 8+1 Special recommendation • What is the relation between them??? • Duplication, supplementing each other. Judge Hesham Ragab Egyptian FIU

27. Relation between The UN Convention and ML • Financial institutions are under obligation to report suspicious transaction regardless if it is resulted from criminal or legitimate source • KYC Rules, Keeping records • Taking effective measures to detect or monitor Transportation of cash. Judge Hesham Ragab Egyptian FIU

28. Security Council Resolution • The Resolution Calls upon all states to become parties to relevant conventions including the SFT convention. Judge Hesham Ragab Egyptian FIU

29. FATF 8 Special recommendations • Preamble says The FATF has agreed that these recommendations when combined with the FATF Forty recommendations on ML set out the basic framework to detect, prevent suppress the financing of terrorism. Judge Hesham Ragab Egyptian FIU

30. Terrorist financing Case StudyThe Link • A foreigner (Z) opened an account in country (A) • He applied for a loan worth millions of Dollars??? • The bank Filed STR report? • Investigation led to …. Judge Hesham Ragab Egyptian FIU

31. Terrorist financing Case Study • The money will be transferred to other accounts belongs to companies owned by Mr (Z) • One of this companies will purchase a Chain of Hotels • (X) a Citizen of another country will later purchase that company • X is a member of terrorist group and Z works on his behalf. Judge Hesham Ragab Egyptian FIU

32. Remarks on this case study • Normal ML suspicious indicators • Take an legitimate business as a front • A layers of transactions and movement of money through different accounts and names • The goal is ….. Judge Hesham Ragab Egyptian FIU

33. What are the links • Financial institutions and Cross border cash movements. • The goal and the medium and channels is the same thus the schemes and techniques are very similar, indicators will be also… • Using FIU existing capacities would be justified or not. • Why we have conducted this analysis (Conflict with LEA) Judge Hesham Ragab Egyptian FIU

34. Egyptian AML System Highlights • Structure of the board of trustees (enforcing AML Agenda) • Link with Egyptian Banking institute and national center for judicial studies. • Certified training is going to be mandatory requirement for…… • Creation Of National Coordinating Committee Judge Hesham Ragab Egyptian FIU

35. National Coordinating committeeAML/CFT • Prime Minister Decree No 63 for 2005 • Established within ML Unit and presided by the Chairman of board of trustees. • Membership list: • Ministry of foreign affairs- Ministry of social affairs • Ministry of Interior – Public Prosecution • National Security Agency- Administrative Control Ag • CBE – CMA- ML Unit- Egyptian Banking institute. Judge Hesham Ragab Egyptian FIU

36. National Coordinating committeeAML/CFT • The Committee shall undertake coordination of the national efforts in the field of combating money laundering and financing terrorism: • And shall contribute to what is required for the implementation of relevant laws, regulations. Judge Hesham Ragab Egyptian FIU

37. Conclusion • Policy makers and political commitment • Identifying Key players • Building effective AML requires?? • Sanctions and role of regulators • Alternative mechanism of coordination • Compliance club (opening forms) • Contact officers • Coordinating High level Commission. Judge Hesham Ragab Egyptian FIU