91665 THE WORLD BANK - Fighting “Dirty Money” and Illicit Flows to Reduce Poverty Transparent Financial Systems and Robust Mechanisms for Asset Recovery SYNOPSIS The Bank contributes to the fight against corruption and other illicit flows through the Stolen Asset Re- covery (StAR) Initiative and Financial Market Integrity (FMI) unit, which promotes the integrity of financial flows and helps client countries put in place the criminal justice tools to go after the proceeds of serious crimes. By helping countries establish systems to obtain information on the source, destination and ulti- mate beneficiary of financial flows, the Bank supports efforts to track illicit transactions both nationally and globally, and disrupt them. Meanwhile, the StAR initiative - a partnership between the Bank and the United Nations Office on Drugs and Crime - helps countries go after funds that have been stolen by cor- rupt officials. Corruption diverts funds that could otherwise be used to support economic growth and build public services, and there is growing evidence that illegal activities such as organized crime and drug trafficking severely undermine poverty reduction. It is estimated that US$20 billion to $40 billion – the equivalent of 20 to 40 percent of total annual international development assistance-- is stolen from devel- oping countries each year. Since being established in 2001(Financial Market Integrity unit) and 2007 (StAR Initiative), both units have helped strengthen financial intelligence institutions, pass reforms and build capacity in over 52 countries. Challenge Global efforts around financial crime now stress the need for customization and a focus on country- Addressing financial crime is challenging, not least driven risks, highlight the problems posed by cash- because gathering evidence of the actual criminal based economies, help countries where the main acts is very difficult, especially in a cross-border generator of dirty money is corruption and ensure context. Using financial flows as a proxy, anti- that integrity and financial inclusion are dealt with money laundering efforts follow the money trail to hand-in-hand. pursue criminals and deprive them of their ill-gotten gains. Anti-money laundering also allows for the Approach targeting of those who aid and abet criminals (in- termediaries), and eases international cooperation The World Bank Anti-Money Laundering and towards the prosecution of financial crimes. Initially Combating the Financing of Terrorism (AML/CFT) driven by the G7 and conceived as a developed program was introduced in 2001 in the context of country agenda by the Financial Action Task Force the Financial Sector Assessment Program (FSAP), (FATF), these efforts have become much more with AML/CFT being the only mandatory element global over the last ten years. The FATF network in any FSAP and FSAP update. This reflects that now includes more than 170 countries. Largely as a the integrity of a financial system is critical to its result of Bank engagement, the challenges confront- stability and development. ing developing countries are now being addressed. April, 2012 2 FIGHTING “DIRTY MONEY” AND ILLICIT FLOWS TO REDUCE POVERTY The work conducted by StAR and FMI is now fully AML/CFT reforms have been implemented in 61 embedded in Bank’s Governance and Anti- client countries. Examples of impact include: Corruption agenda. The past decade has seen a wealth of research on and experience of how ac-  Between 2005 and 2010, the Bank’s technical countable and transparent states create opportuni- work on AML/CFT helped pave the way for 61 ties for poor people, provide better services, and client countries to implement 131 reforms to improve development outcomes. As governments substantially improve their respective around the world improve governance and tackle AML/CFT regimes. The highest level of total corruption, they are seeking support to craft and reforms was in the field of AML/CFT legisla- implement complex programs of reform, build sup- tion with 48 countries setting up or revising porting coalitions, and monitor their impact. Both their AML/CFT legal framework, which works StAR and FMI aim to share knowledge, and bring as the foundation for advancement on other re- complementary tools to this overall mobilization, forms. Of these reforms, 31 laws or bills were focusing on money flows and criminal justice. passed by the countries’ respective governments and 17 laws or bills were submitted to the coun- To achieve these objectives, both StAR and FMI tries’ respective governments for consideration use a combination of instruments that include diag- and passage. The highest level of reform was nostic work (essentially AML/CFT assessments), seen in Africa with 48 reforms, followed by East technical assistance and policy development. Policy Asia & Pacific and Europe & Central Asia with development and knowledge dissemination are criti- 23 and 25 reforms, respectively. cal to advocacy for developing countries, and efforts to stay at the cutting edge of integrity challenges.  Between 2005 and 2011, assisted in the set up of Technical assistance remains the primary source of new institutions such as Financial Intelligence impact. StAR and FMI help client countries estab- Units in more than 20 2 countries lish effective legal and institutional frameworks that are tailored to their specific circumstances and risks,  Held 512 technical assistance events, including and build capacity so that these tools can be effec- scoping missions, workshops, desk reviews, and tively used. other on-site knowledge sharing activities, be- tween 2004 and 2011. As a result: Results – Trained approximately 2800 staff from The results framework for FMI and StAR differ more than 80 jurisdictions on how to con- according to the delivery mechanisms. Policy and duct analysis of financial intelligence. advocacy work is essentially knowledge driven, and aims at influencing international standard setters – Trained 700 examiners of financial sector such as FATF and financial centers, among others. supervisors from more than 20 countries The objective of advisory and technical assistance on how to conduct on-site supervision and engagement is to help client countries set up and help such supervisors develop their own implement effective AML/CFT and asset recovery tailor made on-site supervision manual to regimes 1. To date, Financial Intelligence Units have improve the quality and impact of their en- been established in over 20 countries and 131 forcement – Built capacity of more than 100 financial 1 Countries include: Afghanistan, Algeria, Argentina, Arme- analysts, financial investigators, prosecu- nia, Bangladesh, Belarus, Benin, Burkina Faso, Cambodia, tors, magistrates and judges across the Cameroon, China, Colombia, Croatia, Fiji, Gabon, Ghana, globe to use “follow the money” tools Guatemala, Guinea Bissau, Haiti, Honduras, India, Indone- sia, Ivory Coast, Jordan, Kazakhstan, Kenya, Kyrgyzstan, Lao PDR, Malawi, Malaysia, Mali, Mauritania, Mexico, Mol- 2 dova, Mongolia, Morocco, Mozambique, Namibia, Nigeria, Countries include: Cameroon, China, Gabon, Haiti, Ka- Pakistan, Senegal, Sierra Leone, Sudan, Swaziland, Syria, zakhstan, Kyrgyzstan, Mauritania, Namibia, Niger, Nigeria, Tajikistan, Togo, Tunisia, Turkmenistan, Uzbekistan, Viet- Republic of Central Africa, Senegal, Sierra Leone, Tajikistan, nam, Yemen. Uzbekistan WORLD BANK RESULTS 3 implementing effective asset disclosure systems for  Between 2005 and 2010, implemented the Fi- public officials. nancial Analysis Capacity Enhancement Pro- gram, which helped client countries establish 2) Policy development; through collaboration and enhance the process of developing, analyz- and research, FMI contributes to the international ing, and using financial intelligence to identify debates with a unique perspective that links anti- risks in a financial system, as well as detect in- money laundering efforts with governance and anti- stances of money laundering and terrorist fi- corruption, financial inclusion, ease of doing busi- nancing. The program has been rolled out in 12 ness, taxation, stolen asset recovery, asset disclosure, countries: Afghanistan, Cameroon, Iraq, Koso- environmental crime, and other development issues, vo, Lao PDR, Malawi, Mexico (the pilot coun- and try), Moldova, Namibia, Nigeria, Syria, and Swaziland. 3) Assessments of countries’ anti-money laun- dering and combating terrorism financing regimes  Provided support for countries joining interna- to diagnose effectiveness and areas of potential risk, tional networks of practitioners. More than 103 as stand-alone diagnostics or in the context of the Financial Intelligence Units of developing coun- Financial Sector Assessment Program (FSAP). tries that have received assistance have now joined the Egmont Group, which brings togeth- As mentioned above, StAR’s interventions have er FIUs, to facilitate international cooperation in evolved from a strong focus on policy / advocacy financial intelligence. work to a rebalancing towards assistance to client countries on asset recovery, with a premium on  Brought about direct contacts between practi- hands-on capacity building for recovering stolen tioners, therefore facilitating the provision of in- assets stashed abroad. Overall, the financial re- ternational assistance in the context of asset re- sources allocated to these advisory services range covery cases between 5 and 7 million dollars per year, and have been financed by a mix of Bank and Trust Funds. Bank Contributions Partners Both StAR and FMI are essentially advisory units. Some lending has in the past incorporated In essence, both StAR and FMI must work with AML/CFT related component s– either in the con- partners to achieve results. The StAR Initiative is a text of Development Policy Operations or Invest- joint partnership between the World Bank and the ment Operations. There are also some examples of United Nations Office on Drugs and Crime, ensur- Technical Assistance loans including AML/CFT ing that all activities are conducted under the um- components. Such lending operations were then led brella of the UN Convention against Corruption by the respective Regions, with FMI providing (UNCAC) – specifically Chapter V on asset recov- technical support. ery. Beyond this funding partnership, StAR is en- gaging other partners – international organizations The advisory services described above include: (e.g. UNDP, OECD, FATF), financial centers (G20 members, UK, US, Switzerland), countries impacted 1) Technical assistance; through workshops, by corrupt activities (benefiting from StAR assis- mentorships, hands-on trainings and advisory ser- tance) and civil society (e.g. Transparency Interna- vices supporting countries in: developing effective tional, Global Witness). laws, regulations and institutional frameworks; as- sessing the risk of money laundering and financing FMI has also worked with a range of partners since of terrorism on their economies and financial sys- the start of the AML/CFT program. Because of the tems; training financial sector supervisors and inves- FSAP umbrella, the International Monetary Fund is tigators, prosecutors, or judges; and designing and a critical partner – both in terms of policy and tech- nical assistance. FMI is also thoroughly engaged with the Financial Action Task Force (FATF) and 3 Armenia, Belarus, India, Kyrgyzstan, Malawi, Mongolia, its regional bodies and runs two mentorship pro- Nigeria, Syria, Turkmenistan, Uzbekistan, Vietnam 4 FIGHTING “DIRTY MONEY” AND ILLICIT FLOWS TO REDUCE POVERTY grams jointly with the UNODC (one in Central tinue to provide advice and technical assistance to Asia, one in the Mekong Region). Other partners client countries, as well as the World Bank. include the United Nations, the Organization for Economic Cooperation and Development, the Or- Beneficiaries ganization for Security and Co-operation in Europe, the Egmont Group of Financial Intelligence Units, In the case of Namibia, FMI began its initial en- and the Commonwealth Secretariat. FMI also works gagement through an assessment of the anti money with several bilateral partners – either in the context laundering system in 2005. Following this evalua- of their support and contribution to the AML/CFT tion, wide ranging technical assistance requests from program, or through coordinated and jointly deli- Namibia were received. FMI’s assistance to the vered trainings. country involved help in legal drafting for the AML/CFT law, legal drafting for the implementa- Moving Forward tion of regulations, training of financial sector su- pervisors, assistance in the establishment of the Fi- FMI provides client countries and World Bank staff nancial Intelligence Unit and capacity building for with tools that increase transparency and go after the authorities to engage and train compliance offic- “dirty money” to strengthen the financial sound- ers in the banking system. There was also technical ness, safety and integrity of financial systems. Our assistance related to improvements in domestic AML/CFT and asset disclosure tools offer innova- coordination, as well as preparing a national risk tive ways to fight crimes and address development assessment on ML/FT. Further, thanks to the trust issues of governance and anti-corruption, financial built with Namibian authorities over the years, they inclusion, ease of doing business, stolen asset recov- actively participated in a recent FMI publication that ery, and illicit flows. The training and capacity- assessed the impact of "ill gotten gains" (such as the building provided by FMI helps sustain national proceeds of crime relating to corruption) on the efforts to strengthen the governance and anti- overall economic and financial system. The Nami- corruption agenda. The World Bank is the only mul- bian authorities used the findings of this publication tilateral technical assistance provider on “illicit as a way to raise awareness on the magnitude of the flows” that has a specific focus on developing coun- issue and prioritize the use of their AML tools to- tries. It is also the lone provider with the expertise wards the most important criminal acts. At the same and skills to cover the whole range of issues at stake time, FMI has used the expertise created in Namibia in AML/CFT— including laws and regulations, as by mobilizing Namibian experts to deliver trainings well as institutional strengthening and capacity with FMI in West Africa. building in the criminal justice sector. We will con- WORLD BANK RESULTS 5 LEARN MORE Links – UNODC: http://www.unodc.org/unodc/en/corruption/StAR.html://www.ccrif.org/ – FATF and OECD: http://www.fatf-gafi.org/dataoecd/20/14/41563294.pdf http://www.oecd.org/dataoecd/62/26/48300917.pdf – Asia/Pacific Group on Money Laundering (APG): http://www.apgml.org/ – Eastern and South African Anti Money Laundering Group (ESAAMLG): http://www.esaamlg.org/ – Intergovernmental Action Group against Money-Laundering in Africa (GIABA): http://www.fatf- gafi.org/document/60/0,2340,en_32250379_32236869_34393596_1_1_1_1,00.html – Eurasian Group on combating money laundering & financing of terrorism (EAG): http://www.eurasiangroup.org/ – Middle East & North Africa Financial Action Task Force (MENAFATF): http://www.menafatf.org/ – Council of Europe’s action against money laundering and financing of terrorism(Moneyval): http://www.coe.int/t/dghl/monitoring/moneyval/ Multimedia – Caption: Poster Announcing the StAR participation in Egypt conference on Arab Spring, organized by the civil society from the region. http://www1.worldbank.org/finance/star_site/documents/events/ACCML2011-Flyer_14.pdf – Caption: Panelists from StAR at the Egypt Conference Photo Credit: Nehal El Kouesny, World Bank – Caption: StAR receives award from civil society at the Egypt Conference Photo Credit: Nehal El Kouesny, World Bank – Caption: StAR-organized training in Kabul Afghanistan, December 14, 2011 Credit: Kevin Stephenson, World Bank – Video interview with Jean Pesme, FMI Manager Published: December 2011