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G20 aftermath: World powers want financial system to be ‘entirely hostile’ to terror, corruption

Friday, July 14, 2017   (0 Comments)
Posted by: Brian Monroe
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By Brian Monroe
bmonroe@acfcs.org
July 14, 2017

In the wake of the G20 summit, key world powers have prioritized making the global financial system “entirely hostile to terrorist financing,” tracking lone wolves and foreign fighters, while similarly committing to lofty aims in countering corruption in the public and private sectors.

Those are some of the critical large-scale financial crime challenges tackled in last week’s meeting of the Group of 20, which includes countries like the United States, Russia and China and EU nations. The commitments and talking points that result from the annual summit give a glimpse of future national and international focal points in the areas of compliance, regulation and enforcement. 

While dignitaries wrestled with a wide array of issues tied to crippling organized criminal gangs, cyber fraudsters and terror groups, one central theme wove its way through the proceedings: that a lack of beneficial ownership data is enabling illicit operations of all stripes.

G20 countries will now be required to more aggressively uncover, track and shut down “alternative sources” of terror financing, such as streams coming from drug sales, gun running and human trafficking – a tall order as even large, sophisticated economies are still struggling just to identify and interdict the funds tied to more traditional organized crime groups. 

In that same vein, G20 countries have agreed to more tightly bind together their respective banks, financial intelligence units, and fintech and regtech firms to create and share cutting edge terrorist financing transaction monitoring tools. Terrorist financing often moves in fragmented and diffuse patterns that can elude the monitoring programs currently in operation at many institutions.

G20 countries are also pushing to more broadly empower the Paris-based Financial Action Task Force (FATF), a global financial crime compliance watchdog body, by “strengthening its institutional basis.”

Translation: Some states and countries are pushing to make the group’s recommendations more immediately have the force of local law.

What is still unclear as the dust of the meetings settle, is if the U.S. will still play a top leadership role in efforts to raise worldwide AML standards, share compliance examination tactics and federal investigations experience.

Some commentators argue that the world seems to be looking to other places, like Europe and the United Kingdom, for guidance, under the Trump administration.

“We reaffirm our commitment to tackle all sources, techniques and channels of terrorist financing, including extortion, taxation, exploitation of natural resources and antiquities, drug trafficking, bank looting, looting of civilians and cultural property, external donation, and kidnapping for ransom,” participants said in a G20 statement.

The meetings also touched on the rising risks and spoils of cyberattacks, noting that hackers are becoming more adept at breaching public and private data vaults alike.

Countering that trend would require a more coordinated and concerted international response to upgrade laws bolstering cyber defenses, require more human training and system risk assessments and would call for stronger punitive measures for companies found to have lax data security procedures, leading to a breach, and harsher penalties for the dread pirates involved.

The compliance aftershocks for financial institutions, investigators and regulators include both the potential for new breakthroughs in fighting financial crime, but also new pressures, responsibilities and liabilities, including:

·         Banks: Institutions, on the plus side, could see a new willingness to share information with each other – even across borders – along with approval from senior management to get more resources, either people, systems or training, to create better suspicious activity reports with more intelligence value.

·         Con: Financial institutions also could see more pressure from regulators to drill down into the actual crimes apparent in aberrant activity, rather than just noting the out-of-scope transactions, particularly tied to corruption and terror financing. As well, failures in these areas could mean more than just graft or sanctions-related penalties, but AML fines.

·         Regulators: With the push to knit together FIUs, regulators could get access to more data to see what global weaknesses persist in AML and anti-corruption programs, rather than just what they are seeing in a given jurisdiction or country. That will help them raise banks to more comparable international standards, making it harder for criminals to find a weak link in major financial hubs.

·         Con: Just as FIUs get access to more data, they could be hard-pressed to find the needed people, systems and cross-border mechanisms to analyze, collate and share data.

·         In one recent report looking at the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN), the country’s FIU, auditors were surprised to discover that some high-level global investigations and requests for assistance were thwarted simply because the countries involved didn’t put data in the correct format, a seemingly minor foible, but a deal breaker for American analysts.

·         Federal investigators: On the pro side, similar to banks, they could finally get faster and more thorough responses from foreign counterparts, particularly tied to large, complex foreign corruption and terror finance investigations, expensive initiatives that can crumble without the international pieces of the financial puzzle.

·         As well, if more countries crack open beneficial ownership details, that alone would remove a major impediment to investigations – finding the individuals linked to seemingly unrelated financial transactions.

·         Con: Depending on the political will of a country, and its coffers, that may or may not be a good thing. Currently in the U.S., many aggressive and storied federal investigative agencies have been savaged by budget cuts, leading to an exodus of seasoned talent and an inability to take on more expansive, resource-intensive cases.


Navigating the G20 docs: Where to look to find current, future initiatives on AML, corruption, countering terror finance

G20 Corruption docs

  • High Level Principles on the Liability of Legal Persons (English)
  • High Level Principles on Organizing against Corruption (English)
  • High Level Principles on Countering Corruption in Customs (English)
  • High Level Principles on Combating Corruption related to Illegal Trade in Wildlife and Wildlife Products (English)

FATF seeking ‘legal status’ to strengthen recommendations

In a report to the G20, FATF noted its own contributions to countering financial crime, but also stated one area that could hasten its objectives is if it’s granted “legal status” under its host country laws, a proposal recently made by French authorities.

Such a move could give the group’s current recommendations the force of more formal countrywide and local regulations – something that typically takes months or years to happen if at all, and still countries have the option of “transposing” a version of the recommendations, rather than the exact rules.  

FATF, chiefly through its recommendations, mutual evaluations and follow up country reviews, has taken “concrete steps” to fight terrorist financing, including:

  • Revising its standard on the criminalization of terrorist financing to ensure it applies to the travel of foreign terrorist fighters and that it includes, for instance, economic resources and natural resources used by ISIL.
  • Ensuring all countries implement robust preventive measures to combat terrorist financing through mutual evaluations, so far reviewing 205 jurisdictions.
  • Since 2015, nearly 40 countries have passed new legislation. Seven deficient jurisdictions also passed new legislation to address technical gaps, while others are drafting or adopting legislation to rectify the deficiencies

Currently, FATF is working on helping FIUs better identify terror financing along with identifying and responding to present and future money laundering risks.

The group is also working on a project on terror recruitment financing, including red flags, best practices, inter-agency cooperation and potential strategies to disrupt small cell financing and better detect lone wolves.

As part of its overall efforts to identify significant stumbling blocks to financial crime compliance and investigations, the group is also working on two projects tied to beneficial ownership.

One initiative with the Egmont Group is studying the risk of abuse of certain types of corporate vehicles while the second is a horizontal study of the supervision and enforcement of beneficial ownership obligations. Both reports are expected to be completed in October.

G20 talks tough on terror financing

The G20 saved its strongest and most declarative language for its goals tied to stopping terror groups, their financiers and recruiters.

“We underline our resolve to make the international financial system entirely hostile to terrorist financing,” according to a statement. “We reaffirm our commitment to tackle all sources, techniques and channels of terrorist financing. There should be no ‘safe spaces’ for terrorist financing anywhere in the world.”

That would be achieved by “deepening international cooperation and exchange of information, including working with the private sector, which has a critical role in global efforts to counter terrorism financing.”

G20 countries would also “intensify capacity building and technical assistance, especially in relation to terrorist financing hot-spots," and with FATF, as well, using its influence to improve its "traction capacity and the effectiveness of FATF and FATF-style regional bodies.”

Countries must also address “all alternative sources of financing of terrorism, including dismantling connections, where they exist, between terrorism and transnational organized crime, such as the diversion of weapons including weapons of mass destruction, looting and smuggling of antiquities, kidnapping for ransom, drugs and human trafficking.”

Countering corruption for corporates, government

G20 countries also detailed their plan to attack both the supply and demand sides of corruption by detailing “High Level Principles,” to give graft the shaft for corporates, trading firms and individuals paying bribes to governments, customs border guards and trade inspectors, in some cases to smuggle contraband goods, like live wildlife and related products.

“Fighting corruption would fall short if only the natural persons involved were punished while the legal person was exempt from sanctions,” according to the principles looking at corporate abuses.

“Furthermore, in an increasingly complex and global economy, it can often be difficult to identify and/or prosecute responsible individuals, while the liability of, and illegal benefits derived by, a legal person can be more clearly established.”

Overall, the various “High Level” precepts followed similar patterns, mainly focusing on creating a culture of compliance, monitoring for risk-weighted actions, transactions and vulnerabilities and penalizing bribing companies, intermediaries and the governments taking the graft-gilt goodies.  

Here are some examples of the 14 principles tied to countering corruption in corporates:

  •  Principle 1: A robust legal framework should be in place for holding legal persons liable for corruption, including domestic and foreign bribery, and related offences.
  • Principle 2: Corporate liability legislation should capture all entities with legal rights and obligations.
  • Principle 3: Liability of legal persons should not be restricted to cases where the natural person or persons who perpetrated the offence are prosecuted or convicted.
  • Principle 4: Liability of legal persons should not be limited to cases where the offence was committed by a senior manager.
  • Principle 5: A legal person should not be able to avoid responsibility by using intermediaries, including other legal persons to commit a corruption offence on its behalf.

“Ensuring that a legal person, as well as the culpable individuals, can be held liable can therefore have an important deterrent effect,” according to the G20, “motivating and incentivizing enterprises to make compliance a priority along with investing in adequate and effective internal controls, ethics and compliance [programs] or measures to prevent and detect corruption.”


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