Transcript AML/CFT Regime in Light of Global Financial Crisis

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
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
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Reasons behind Global financial Crisis
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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,
8) Governments regulation or the lack of
9) Stock market volatility, downward currency values
10)Moral Hazard, abundance of greed, & corruption
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Impact on AML/CFT in light of
Current Financial Crisis
1) Significant investment in AML systems and controls
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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
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Challenges facing AML in Light of
Global Financial Crisis
I. Accountability for the Global Financial Crime,
Rethinking/redefining of AML
II. Optimal Allocation of Human & Monetary
Resources
III. Maintaining International Cooperation
IV. Adequate priority to AML Program
V. Regulatory framework to prevent future
financial crisis
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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
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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
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I.
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
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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
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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
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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?
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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
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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
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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.”
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Thank You
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