Transcript AML/CTF Measures and Challenges in Egypt

Egypt Experience in adopting
AML/CTF
Measures and Challenges
Pakistan 2005
Judge Hesham Ragab
Egyptian FIU
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
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Legal
Financial institutions
FIU
LEA
• CFT Challenges with the AML context In
Judge Hesham Ragab
Egypt
Pakistan 2005
Egyptian FIU
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
Pakistan 2005
Judge Hesham Ragab
Egyptian FIU
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
Pakistan 2005
Judge Hesham Ragab
Egyptian FIU
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
Pakistan 2005
Judge Hesham Ragab
Egyptian FIU
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.
Pakistan 2005
Judge Hesham Ragab
Egyptian FIU
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)
Pakistan 2005
Judge Hesham Ragab
Egyptian FIU
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.
Pakistan 2005
Judge Hesham Ragab
Egyptian FIU
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.
Pakistan 2005
Judge Hesham Ragab
Egyptian FIU
Executive regulations
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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.
Pakistan 2005
Judge Hesham Ragab
Egyptian FIU
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)
Pakistan 2005
Judge Hesham Ragab
Egyptian FIU
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)
Pakistan 2005
Judge Hesham Ragab
Egyptian FIU
E.G of CBE examination check list
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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 ….
Pakistan 2005
Judge Hesham Ragab
Egyptian FIU
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)
Pakistan 2005
Judge Hesham Ragab
Egyptian FIU
Number of STRs in 2nd year of
implementation
• End February 2004 was 325 STR
• 850 STR at end of January 2005
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Financial institution 748
Supervisory Authorities 38
Individuals
35
LAE
16
Counter FIUs
13
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Conviction
2
• Inquiries in public prosecution (10)
Pakistan 2005
Judge Hesham Ragab
Egyptian FIU
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)
Pakistan 2005
Judge Hesham Ragab
Egyptian FIU
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
Pakistan 2005
Judge Hesham Ragab
Egyptian FIU
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
Pakistan 2005
Judge Hesham Ragab
Egyptian FIU
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
Pakistan 2005
Judge Hesham Ragab
Egyptian FIU
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)
Pakistan 2005
Judge Hesham Ragab
Egyptian FIU
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?????
Pakistan 2005
Judge Hesham Ragab
Egyptian FIU
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
Pakistan 2005
Judge Hesham Ragab
Egyptian FIU
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?
Pakistan 2005
Judge Hesham Ragab
Egyptian FIU
FATF
Financial 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
Pakistan 2005
Judge Hesham Ragab
Egyptian FIU
Sources of Terrorist funds
• Countries
• Charities whether or not they know or
don’t….
• Self finance
– Investing in legitimate business
– Investing in Crimes (Narcoterrorist)
Pakistan 2005
Judge Hesham Ragab
Egyptian FIU
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.
Pakistan 2005
Judge Hesham Ragab
Egyptian FIU
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.
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Pakistan 2005
Judge Hesham Ragab
Egyptian FIU
Security Council Resolution
• The Resolution Calls upon all states to
become parties to relevant conventions
including the SFT convention.
Pakistan 2005
Judge Hesham Ragab
Egyptian FIU
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.
Pakistan 2005
Judge Hesham Ragab
Egyptian FIU
Terrorist financing Case Study
The 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 ….
Pakistan 2005
Judge Hesham Ragab
Egyptian FIU
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.
Pakistan 2005
Judge Hesham Ragab
Egyptian FIU
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 …..
Pakistan 2005
Judge Hesham Ragab
Egyptian FIU
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)
Pakistan 2005
Judge Hesham Ragab
Egyptian FIU
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
Pakistan 2005
Judge Hesham Ragab
Egyptian FIU
National Coordinating committee
AML/CFT
• Prime Minister Decree No 63 for 2005
• Established within ML Unit and presided by the
Chairman of board of trustees.
• Membership list:
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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.
Pakistan 2005
Judge Hesham Ragab
Egyptian FIU
National Coordinating committee
AML/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.
Pakistan 2005
Judge Hesham Ragab
Egyptian FIU
Conclusion
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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.
Pakistan 2005
Judge Hesham Ragab
Egyptian FIU