FINANCE FINANCE EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT Impact of the FATF Recommendations and their implementation on financial inclusion Insights from mutual evaluations and national risk assessments Kuntay Celik © 2021 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved. This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. Nothing herein shall constitute or be considered to be a limitation upon or waiver of the privileges and immunities of The World Bank, all of which are specifically reserved. 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All queries on rights and licenses should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; e-mail: pubrights@worldbank.org. Cover design and layout: Diego Catto / www.diegocatto.com >>> Acknowledgments This report has been authored by Mr. Kuntay Celik from the Financial Stability and Integrity (FSI) team of the World Bank. The author thanks Ms. Cecilia Joseph Marian (FSI) for her extensive support during the research and drafting; Ms. Cari Votava (FSI) for her support in reaching out to selected study countries; and Mr. Christopher Calabia (Bill & Melinda Gates Foundation) for his support in developing the project concept. Marian, Votava, and Calabia also greatly contributed to the review and improvement of the report. The author also thanks Ms. Valeria Salomao Garcia and other experts from FSI and the World Bank’s Financial Inclusion and Infrastructure teams, and the management of both teams, for their contributions to this report and active support for the project. Experts from Consultative Group to Assist the Poor (CGAP) and the Alliance for Financial Inclusion (AFI) have also provided valuable comments and guidance in various stages of the project. The author is also thankful to all other parties mentioned in this report for their participation in the project workshops and bilateral interviews, and to peer reviewers Ms. Fredesvinda Fatima Montes, Ms. Emiko Todoroki, Ms. Tanjit Sandhu Kaur, Mr. Louis de Koker, Mr. Peter Reuter, and Mr. Robin Newnham for their diligent review of the report and their extremely useful comments and suggestions. The research project was funded by the Bill & Melinda Gates Foundation. The findings, interpretations, and conclusions expressed in this work belong to the author and do not necessarily reflect the views or positions of either the World Bank Group, its Board of Executive Directors, and the governments they represent, or the Bill & Melinda Gates Foundation. >>> Contents Acronyms 5 Executive Summary 7 1. Introduction 9 1.1. FATF Recommendations and Financial Inclusion 9 1.2. Objective of the Report 10 1.3. Scope and Methodology 10 1.4. Literature Review 11 2. The Analysis 13 2.1. Analysis of the Information in Mutual Evaluation Reports 13 2.1.1. Do the MERs cover the state of financial inclusion in the jurisdictions? 14 2.1.2. Do assessors consistently see financial exclusion as an ML/TF risk? 14 2.1.3. How extensively do jurisdictions use exemptions from AML/CFT requirements? 18 2.1.4. How extensively do jurisdictions use simplified customer due diligence (SDD)? 19 2.1.5. Does the tendency toward application of exemptions differ in FATF and FSRB jurisdictions? 20 2.1.6. Does the tendency toward application of SDD differ in FATF and FSRB jurisdictions? 21 2.1.7. In MERs, what are the most common criticisms about exemptions and simplifications? 22 2.1.8. What trends are seen in the coverage of financial inclusion in MERs? 23 2.2. Coverage of Financial Exclusion Risks in National Risk Assessment Reports 25 2.2.1. Coverage of financial exclusion-related risks in NRAs, and the effect on MERs 25 2.2.2. Positive impact of the World Bank’s FIRM tool 25 2.2.3. Insights from the national risk assessments 26 2.3. Supplement on Expert Opinions 34 3. Conclusions and Recommendations 37 Appendix A. Mutual Evaluation Reports by FATF and FSRBs That Are Used in This Study 41 Appendix B. Study Data Extracted from 107 Mutual Evaluation Reports 43 Appendix C. Quotes from Mutual Evaluations Reports on Criticism of Simplifications or Exemptions 58 Appendix D. The Financial Inclusion Product Risk Assessment Module (FIRM) 62 Appendix E. Subject Matter Expert Survey Questions 65 References 68 >>> Acronyms AFI Alliance for Financial Inclusion AML/CFT anti-money laundering/combating the financing of terrorism AMLD Anti-Money Laundering Directive APG Asia/Pacific Group on Money Laundering CDD customer due diligence CFATF Caribbean Financial Action Task Force CGAP Consultative Group to Assist the Poor CGD Center for Global Development DNFBPs designated nonfinancial businesses and professions EAG Eurasian Group EC European Council EEA European Economic Area e-KYC electronic know your costumer EMDEs emerging market and developing economies ESAAMLG Eastern and Southern Africa Anti-Money Laundering Group EU European Union FATF Financial Action Task Force FI financial inclusion FIRAT financial inclusion product risk assessment tool (previous name) FIRM financial inclusion product risk assessment tool (current name) FIU financial intelligence unit FSRBs FATF-style regional bodies G-20 Group of Twenty GAFILAT Financial Action Task Force of Latin America GDP gross domestic product GIABA Inter-Governmental Action Group against Money Laundering in West Africa Global Findex Global Financial Inclusion Database (by WBG) GPFI G-20 Global Partnership for Financial Inclusion IMF International Monetary Fund IO immediate outcome KYC know your customer LE low level of effectiveness EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 5 LICs low-income countries ME moderate level of effectiveness MENAFATF Middle East and North Africa Financial Action Task Force MER mutual evaluation report MFIs microfinance institutions ML/TF money laundering/terrorist financing MONEYVAL Committee of Experts on the Evaluation of AML/CFT NGO nongovernmental organization NRA national risk assessment RBA risk-based approach SACCO saving and credit cooperative society SAR special administrative region SDD simplified customer due diligence SSB standard-setting body WBG World Bank Group EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 6 >>> Executive Summary Financial system safeguards against money laundering and terrorist financing are crucial for the integrity of the global financial system, but these safeguards need to be crafted in such a way that they do not negatively affect financial inclusion and disincentivize the use of the formal financial system by ordinary individuals and businesses. This study examines the possible unintended consequences of the implementation of international standards on anti-money laundering/combating the financing of terrorism (AML/ CFT) on financial inclusion objectives and proposes ways to address any such consequences. This examination focuses mainly on external AML/CFT compliance evaluations, so-called mutual evaluations, led by international organizations and the money laundering/terrorist financing (ML/TF) risk assessments undertaken by the countries themselves. The analysis is supplemented by interviews with officials and private sector representatives from three countries and by field experience and observations from experts. The Financial Action Task Force (FATF), the international standard setter for AML/CFT, has been devoting increasing attention to financial inclusion over the past decade, but this is not yet fully reflected in country mutual evaluations. The FATF’s increasing attention is evident in its guidance papers on financial inclusion and digital identification (ID), and in the recognition of the importance of financial inclusion in its 2019 mandate. However, coverage of financial inclusion in mutual evaluations is still uneven and mostly superficial and is not accompanied by concrete policy recommendations. >> Recommendation: The FATF could explicitly cover the potential adverse impacts of stringent AML/ CFT rules on financial inclusion in its assessor training and, more importantly, in its assessment methodology for mutual evaluations. The FATF Recommendations offer sufficient flexibility to support financial inclusion, but the very cautious tone about these flexibilities can be a disincentive for regulators. This finding is based on the views of experts from the World Bank, other international organizations, and nongovernmental organizations, and it can be further examined with a broader survey of experts, regulators, and the private sector. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 7 proper legal protection for supervisors may also be a reason for a risk-averse stance. These problems are further aggravated >> Recommendation: by the weak cooperation between financial supervisors and The FATF could reconsider its very cautious tone financial inclusion policy makers. Developing countries are regarding customer due diligence (CDD) simpli- lagging behind developed countries in implementing a risk- fications, and exemptions in its interpretive notes, based approach to AML/CFT. guidance documents, and public statements. There could be more constructive and direct communica- tion about these flexibilities, and more encourage- ment of their use in low-risk situations. >> Recommendation: Lower-income countries require more support for awareness raising and capacity building for regu- lators and supervisors to help them implement Paradoxically, the countries that most need the AML/CFT a risk-based approach to AML/CFT. The World flexibilities use them least. The use of CDD simplifications Bank, the International Monetary Fund, and the and exemptions declines with the income level of a country. Alliance for Financial Inclusion already have tech- Most low-income countries have severe problems related to nical assistance programs on these topics, which financial exclusion and informal financial market, and therefore could be prioritized and better resourced, if and as have the highest need to employ appropriate exemptions and needed. The FATF Training and Research Institute simplification to tackle these problems. However, they are and other stakeholders may also prioritize such reluctant to use these policy options. capacity building. Policy makers in many developing countries are reluctant to use CDD simplifications and exemptions mainly for: (a) fear of negative ratings in mutual evaluations, and Countries’ self-assessment and awareness can guide (b) challenges related to regulatory and supervisory a better understanding of the interrelation between capacity. Financial regulatory and supervisory agencies financial exclusion and ML/TF risks. The relationships in these countries are concerned that any simplifications or among ML/TF risks, AML/CFT measures, financial exclusion, exemptions might not be condoned by FATF assessors. Our and informal economies have not always been fully analyzed analysis shows that simplifications or exemptions are indeed and understood by the countries themselves. Most countries criticized in mutual evaluations, though frequently only for need to identify and monitor these relationships better and not being based on reliable risk assessments. However, this collect data to monitor changes, which eventually can facilitate deficiency usually is not seen as substantial and does not appropriate policy responses. Mutual evaluation assessors lead to a downgrading of relevant ratings. The study did not should consider the country’s understanding and management find any evidence of assessors criticizing a simplification that of these relationships. is based on a robust risk assessment. These concerns of regulators and supervisors are therefore not justified based on the reports studied in this project. >> Recommendation: Countries are encouraged to deepen their under- Raising awareness and building regulatory and standing of the relationships among ML/TF risks, supervisory capacity for a risk-based approach must be a AML/CFT measures, financial exclusion, and infor- priority for technical assistance providers. Regulatory and mal economies, by conducting a specific risk as- supervisory agencies in developing countries face capacity sessment focused on financial exclusion problems, constraints in implementing a risk-based approach to AML/CFT. and financial inclusion products and services. The agencies of such countries lack the training, experience, and self-confidence to apply a risk-based approach, and they tend to be too stringent about AML/CFT requirements. Lack of EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 8 1. >>> Introduction 1.1. FATF Recommendations and Financial Inclusion The risk-based approach (RBA) has emerged as a significant strategy in tackling regulatory challenges, which are becoming more complicated in a rapidly growing and evolving financial landscape and global economy. For governments and businesses, the RBA promises more dynamic and effective responses and solutions, not only to financial and economic risks but also to other internal or external risks, including those posed by crimes and criminals. Since 2012, the Financial Action Task Force (FATF) has also incorporated mandatory RBA in the International Standards on Combatting Money Laundering (ML) and Financing of Terrorism (TF) and Proliferation (PF)—namely, the FATF 40 Recommendations1 —as the foundation of a more effective global fight against these crimes. Informal or so-called shadow economies and financial markets create an ideal environment for criminal and terrorist organizations, where they can generate, conceal, launder, and mobilize their funds and where they can easily undermine the efforts of any country on anti- money laundering and combating the financing of terrorism (AML/CFT). Expanding financial inclusion is essential for preventing and reducing the informal economy and reducing the use of cash, thereby reducing vulnerabilities to money laundering and terrorist financing (ML/TF) and eventually enhancing the effectiveness of AML/CFT measures. In response to this need, the FATF, in its 2019 mandate, formally articulated its commitment to promoting financial inclusion and encouraging countries’ proportionate and effective implementation of the FATF standards in line with the RBA.2 When appropriately implemented, the RBA that is required by FATF Recommendation 1 and woven into other FATF recommendations can be key to building an effective AML/CFT regime that prevents financial exclusion and informality while mitigating ML/ TF risks in the formal financial sector. However, it is not easy to strike this delicate balance. Mutual evaluations undertaken by FATF and FATF-style regional bodies (FSRBs), along with independent research and studies (such as GIABA 2014 and 2018), show that many countries have yet to implement a successful RBA. 1 International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation, February 2012, Financial Action Task Force. 2 See https://www.fatf-gafi.org/media/fatf/content/images/FATF-Ministerial-Declaration-Mandate.pdf. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 9 While progress in global financial inclusion targets is slower assessment methodology (FATF 2013) for the fourth round of than expected,3 available research, plus field experiences of mutual evaluations and were published between December World Bank experts, shows that the FATF Recommendations 2014 and April 2021 (appendix A). Using a list of questions or their implementation have visible unintended consequences and indicators, data were extracted from these reports and for financial inclusion objectives. Concerns about these accumulated in a database (appendix B). We reviewed and unintended consequences have been further aggravated by studied how MERs covered financial inclusion/exclusion and the significant incidence of financial institutions refusing to the informal economy landscapes of the assessed countries provide formal financial services in recent years, a practice and reacted to simplified customer due diligence (SDD) commonly known as de-risking.4 applications by the countries or use of AML/CFT-related exemptions, which are possible in proven low-risk scenarios. 1.2. Objective of the Report The database has also been expanded with some additional data on these 107 jurisdictions, such as the figures on income, financial exclusion, and shadow economy for each study The objective of this report is to examine FATF and FSRB jurisdiction. The analysis of MERs was supported with further mutual evaluation reports (MERs), and national ML/TF information from risk assessments done by the countries themselves, to • National ML/TF risk assessments undertaken by countries understand possible unintended consequences of the (with or without World Bank support) FATF Recommendations or their implementation, on • Experiences and inputs of the subject matter experts, financial inclusion. The report also aims to provide policy mainly those in international organizations recommendations based on the results of the analysis. • Surveys, interviews, and meetings with representatives from public and private sectors of selected countries. The topic is not novel; it has been studied in the past, in some cases with World Bank involvement. This study aims To facilitate consultation and to incorporate inputs from subject to deepen the analysis and understanding of the possible matter experts and other stakeholders, the WB organized a issues by using new information and data not available or workshop on September 29, 2020, and coordinated bilaterally fully covered in earlier studies. The project was sponsored by with the FATF Secretariat and other stakeholders. The the Bill & Melinda Gates Foundation, and the concept for this feedback from these interactions was used to further expand, research project was developed jointly by the World Bank and refine, and better focus the research. We also surveyed the Bill & Melinda Gates Foundation. 39 experts from various stakeholders who had intensive involvement and practical experience on financial inclusion. 1.3. Scope and Methodology The research project focuses on what can be inferred from MERs, national risk assessments, and the experience of the experts who work in the field, by concentrating on the issues Our research focused mainly on gathering and collating we deemed relevant to the aim of the project. The project is information related to financial inclusion contained in not about a comprehensive review of all the relevant laws FATF and FSRB mutual evaluation reports (MERs). The and regulations of the study jurisdictions, which would be a study covered 107 MERs that are based on FATF’s 2013 resource-intensive exercise beyond the scope of this project. 3 The World Bank Group’s target was achieving universal financial access by 2020. However, despite the progress made, that does not seem possible in the near future. 4 FATF defines de-risking as the “phenomenon of financial institutions terminating or restricting business relationships with clients or categories of clients to avoid, rath- er than manage, risk in line with the FATF’s risk-based approach.” De-risking is most prominent in provision of correspondent banking services by global banks. See https://www.fatf-gafi.org/documents/documents/rba-and-de-risking.html. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 10 1.4. Literature Review Attention to the alignment of financial integrity and financial and Financial Inclusion for the Poor—Toward Proportionate inclusion policy objectives has been increasing since the early Standards and Guidance,” identified some challenges specific 2000s. In 2006, for example, the World Bank supported a to each standard-setting body (SSB) and also joint challenges study that produced evidence and recommendations on the for all SSBs, and it made recommendations to be considered impact of AML/CFT measures on access to financial inclusion, by all SSBs to encourage financial inclusion efforts globally. and in 2014 it led a fact-finding study outlining the extent of The paper introduced the proportionality principle for regulation de-risking, conducted by the G-20, Financial Stability Board, and supervision, particularly when SRBs are addressing three and Committee on Payments and Market Infrastructures themes: (a) financial exclusion risks, (b) the risks resulting (World Bank 2015). The Bank also supported inclusion- from increasing financial inclusion, and (c) country context. sensitive national risk assessments (NRAs) by providing a The report contains a range of recommendations, including complementary financial inclusion module and by making that the FATF should incorporate principles relating to financial recommendations regarding a more inclusion-sensitive MER inclusion, where relevant, into its new or updated guidance methodology for the fourth round (Chatain et al. 2011). and its mutual evaluation methodology (GPFI 2011, 45). Since 2009, the FATF has acknowledged that financial The GPFI’s second white paper, “Global Standard-Setting inclusion and AML/CFT are complementary policy objectives Bodies and Financial Inclusion: The Evolving Landscape,” (Vlaanderen 2009). The FATF initially clarified its views aims “to integrate financial inclusion objectives into standards on inclusion in its June 2011 guidance paper “Anti-Money and guidance that can be applied effectively at the country Laundering and Terrorist Financing Measures and Financial level” (GPFI 2016, 2). The paper welcomes FATF efforts in Inclusion,” produced jointly with the World Bank and the revising the financial inclusion guidance, introducing risk- Asia-Pacific Group. This guidance was revised in 2013 and based assessment in the revised recommendations, and further expanded by the addition of examples of simplified due integrating effectiveness of RBAs into the FATF methodology. diligence measures in 2017 (FATF 2017). The FATF embedded It also emphasizes the importance of the MERs by highlighting elements of regulation to support inclusion in its revised the Ethiopian report as an example. The paper also draws standards in 2012 and in its mutual evaluation methodology in attention to some challenges faced—notably, financial integrity 2013. Promotion of financial inclusion also features in the 2019 risks stemming from financial exclusion. Importantly, the paper continuing mandate of the FATF. The FATF acknowledges, recommends that standard-setting bodies should work toward for example, that “applying an overly cautious approach to developing a common understanding of the risks of financial AML/CFT safeguards can have the unintended consequence exclusion and should explore the development of a framework of excluding legitimate businesses and consumers from the to assess the impact of financial sector regulation, supervision, formal financial system” (FATF 2017, 34). enforcement, and institutional compliance practices on financial exclusion risks and their mitigation (GPFI 2016, 94). The unintended consequences of the FATF Recommendations and other global standards on financial inclusion are therefore Another study by the World Bank, “Making Remittances not a new topic.5 Various studies have already examined and Work: Balancing Financial Inclusion and Integrity” (Todoroki discussed possible unintended consequences. A summary of et al. 2014), compiles insights from 15 bilateral remittance a selection of more recent studies is provided in the following corridor analyses that were conducted earlier and a survey of paragraphs. Our research aims to add value by analyzing remittance regulators. It highlights the potential role of the risk- data and information that were not available or not analyzed based approach in balancing financial inclusion and integrity in previous studies, such as the data pulled from all the and in supporting a continuous flow of low-risk remittances. MERs done to date in the fourth-round methodology and the information in NRA reports. The Inter-Governmental Action Group against Money Laundering in West Africa (GIABA) published “Know Your The G-20 Global Partnership for Financial Inclusion’s (GPFI Customer/Customer Due Diligence Measures and Financial 2011) first white paper, “Global Standard-Setting Bodies Inclusion in West Africa, An Assessment Report” in 2018. The 5 Some of the earliest studies include de Koker (2006) and Isern and de Koker (2009). EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 11 report includes valuable insights about the implementation for measuring and understanding financial exclusion risk, of RBA strategy in relation to financial inclusion and SDD (ii) Strengthen assessor training and expand staffing to take measures, de-risking cases, and regulatory and supervisory financial exclusion risks into account more consistently, (iii) agency responses to customer due diligence (CDD) Require assessors to encourage the use of SDD measures measures regarding financial inclusion in West Africa. The unless there is a good reason not to” (Pisa 2019, 27). report analyzes financial inclusion on the basis of technical compliance of related recommendations and effectiveness The Consultative Group to Assist the Poor’s (CGAP’s) focus assessment of relevant immediate outcomes and presents note, “AML/CFT and Financial Inclusion: New Opportunities recommendations as guidance to countries in the region. Emerge from Recent FATF Action,” presents an overview of FATF actions to promote financial inclusion while maintaining The Center for Global Development’s “Unintended financial integrity and financial stability (Lyman and Noor Consequences of Anti–Money Laundering Policies for 2014). The note discusses the opportunities and challenges Poor Countries” (CGD 2015) tries to determine unintended for the future of financial inclusion while crafting AML/CFT consequences of de-risking and analyzes the effects of de- policies at the country level. A CGAP technical note, “Risk- risking on money transfer entities, correspondent banking, and Based Customer Due Diligence Regulatory Approaches” nonprofit organizations that are used by different underserved (Meagher 2019), classifies risk-based regulatory CDD clients and businesses. The report recommends that countries approaches as a principle-based, single lower-risk-threshold, “rigorously assess the unintended consequences, generate multitiered system and discusses the advantages and better data and share data, strengthen the risk-based disadvantages of these approaches. Finally, a CGAP briefing approach, improve compliance and clarify indicators of lower paper on collaborative CDD that supports inclusion by lowering risk, facilitate identification and lower the costs of compliance” compliance costs provides a typology to evaluate different (p. 41). It discusses some key problems and makes some collaborative approaches (Lyman et al. 2019). recommendations. Another CGD report, “Does the Financial Action Task Force (FATF) Help or Hinder Financial Inclusion? The Alliance for Financial Inclusion (AFI) Global Standards A Study of FATF Mutual Evaluation Reports,” reviews MERs of Proportionality Working Group has several recent publications 33 developing countries (Pisa 2019). The report aims to find out relevant to the scope of this report. These include “Inclusive how and to what extent the MERs take financial inclusion and Financial Integrity: A Toolkit for Policymakers” (2020a); exclusion into account during the evaluation process and how “Proportionality in Practice Case Studies, vol. 1” (2018b); assessors evaluate countries’ SDD measures and the effects “Gender Considerations in Balancing Financial Inclusion and of the flexibility FATF provides to countries. The report’s three AML/CFT” (2018a); and Risk-Based Approaches to AML/CFT: recommendations are “(i) Develop a structured framework Balancing Financial Integrity and Inclusion” (2013). EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 12 2. >>> The Analysis 2.1. Analysis of the Information in Mutual Evaluation Reports The analysis covered 107 jurisdictions’ mutual evaluation reports prepared by FATF and FSRBs that are based on FATF’s 2013 assessment methodology and were published between December 2014 and April 2021. We focused on the information related to financial inclusion only in the MERs; follow-up reports were not included in the analysis. Although all MERs were included in the data analysis, the review of MERs in Spanish and French was more limited than the review of reports available in English. Open data on these 107 jurisdictions were used to cross-support some of the analyses. The analysis about the level of financial inclusion is also limited to the same pool of jurisdictions. Therefore, if a figure says, for example, that 60 percent of the jurisdictions have some CDD simplifications, it is referring to the sample (107 study jurisdictions), not the broader universe of countries. An analysis such as this was possible because FATF and FSRB mutual evaluations are based on a standard assessment methodology and process. The process, which includes quality and consistency reviews, generates public reports that are generally of good quality, even though they have some inherent limitations of being an external assessment conducted in a limited time frame. FATF also improves these processes through feedback and self-review mechanisms. Analyses in this report are mostly descriptive and do not aim to test causality. For the analysis of the factors related to financial inclusion, the study uses the World Bank’s Global Findex data on “account holding % by +15 age group.” In Global Findex methodology, this ratio denotes “the percentage of respondents who report having an account (by themselves or together with someone else) at a bank or another type of financial institution or report personally using a mobile money service in the past 12 months.”6 For each study jurisdiction, financial exclusion is defined as the transposition of this financial inclusion ratio (by subtracting it from 100 percent). Many individuals do not use their accounts actively, although they own one or more. Therefore, when the lack of usage is considered, financial inclusion ratios in all countries decline, and financial exclusion ratios increase. This study adopted a conservative approach and used the account ownership data as the indicator of financial inclusion/exclusion levels and did not include usage data. 6 World Bank, “2017 Global Findex Glossary,” 1. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 13 In the analysis, implementation of SDD is divided into two main of their ML/TF risk implications. Using the pool of 107 categories, referred to in this study as predefined SDD and jurisdictions, the we examined MERs to see if this was indeed discretionary SDD. the case. • PREDEFINED SDD: In this scenario, the lower-risk In general, 44 percent of the MERs contain at least some situations that justify simplifications in CDD, and the way information on the state of financial inclusion in the jurisdiction. of application of SDD (for example, tier-based CDD) are We also analyzed whether financial exclusion was quoted or defined in the law and regulations of the country. This mentioned in the reports as an ML/TF risk factor. This was kind of SDD corresponds to criterion 1.8 in the 2012 the case in 38 percent of the reports. Thus, 6 percent of the FATF assessment methodology, under “Obligations and reports contain references to financial inclusion but do not cite Decisions for Countries”. it as an ML/TF risk. • DISCRETIONARY SDD: The country gives discretion to Almost 37 percent of the reports mention that the jurisdiction the private sector to decide how to design and apply SDD has some financial inclusion products and services, 36 percent in lower-risk situations. The regulatory authorities may or of the reports have references to the jurisdiction’s financial may not have predefined SDD in parallel. Discretionary inclusion strategy or policy, and 17 percent of the reports SDD is related to criterion 1.12 of the methodology, under contain recommendations related to financial inclusion. “Obligations and Decisions for Financial Institutions Although 41 MERs cited financial exclusion as a risk factor, and DNFBPs [designated nonfinancial businesses only 18 reports made relevant recommendations. and professions].” The jurisdictions were almost never criticized in the MERs A list of data collection points and research questions was for having overly restrictive AML/CFT laws and regulations used as a basis to guide the extraction of the data from MERs. that might impede financial inclusion. The only exception to The following sections summarize the findings about the this is in Albania’s MER, in which the assessors stated: “In research questions that yielded meaningful results. devising further policies to promote financial inclusion, the assessment team encourages authorities to pay particular 2.1.1. Do the MERs cover the state of attention to ensuring that AML/CFT requirements do not financial inclusion in the jurisdictions? have an overly restrictive effect on access to the formal The FATF assessment methodology states that the informal financial system” (MONEYVAL 2018). According to the sector or shadow economy should be considered as part of MER, Albania does not apply predefined or discretionary the evaluation process when evaluating the country context SDD or any exemptions.7 However, assessors did not and planning the structural elements of the evaluation. regard these as reasons to downgrade ratings when Although financial inclusion or exclusion is not covered by assessing the relevant recommendations. Although the core issues to be assessed under Intermediate Outcome not as direct as Albania’s MER, a finding in Pakistan’s 1 or the others, the methodology advises the consideration MER is another example: The section on Immediate of financial inclusion or exclusion, in the overview of country Outcome8 (IO) 1 criticizes very limited implementation of risk and context, and AML/CFT strategy. Also, in Intermediate risk-based approach in lower risk activities. (See notes in Outcome 4, financial inclusion and informal sector are table 2.1.) mentioned in the examples of information that can support the conclusions on core issues. But these references to financial The above analysis includes all 107 MERs regardless of the inclusion or exclusion are more advisory in nature. state of financial exclusion in the jurisdictions. The following analyses consider the financial exclusion level. During mutual evaluations, assessors are expected to form an understanding of the ML/TF risk context of the country before 2.1.2. Do assessors consistently see financial carrying out the mutual evaluation to assess noncompliance exclusion as an ML/TF risk? and effectiveness issues. This understanding should be based Our analysis found that the MER assessors are more likely on the country’s national risk assessment and the assessor’s to cite exclusion as a risk when the financial exclusion rate own research and analysis, as needed. If a country has is more than 32 percent (or the financial inclusion rate is less significant levels of financial exclusion and informal economy than 68 percent). activity, these are expected to be covered in MERs because 7 With the amendments to its AML/CFT Act in 2019, Albania regulated SDD in its legislation, giving rise to both kinds of SDD. 8 Immediate Outcomes are the 11 categories for the assessment of the effectiveness in FATF’s 2013 assessment methodology. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 14 In the first stage of the analysis, the jurisdictions were divided into four groups based on their financial exclusion levels, and the coverage of financial exclusion in MERs was analyzed for each group. Given the potential links among financial exclusion, the informal economy, and the use of cash, the attention the assessors gave to these three concepts was also analyzed and compared (see figure 2.1). > > > F I G U R E 2 . 1 - MERs coverage of the use of cash, informal economy, and financial exclusion as risk or concerns Coverage of cash, informal economy, and financial exclusion risks or concerns in MERs (%) 100 97% 90% 90% 90 84% 80% 80 74% 72% 70 60 50 47% 42% 40 33% 30 26% 20 10 8% 0 Countries with less than Countries with 10%-29% Countries with 30%-49% Countries with 50% and 10% financial exclusion financial exclusion financial exclusion more financial exclusion MER cites cash as a risk or concern MER cites informal economy as a risk or concern MER cites financial exclusion as a concern In general, the analysis shows that the coverage of the use and financial exclusion. In most groups, the first two are more of cash, informal economy, and financial exclusion as an frequently mentioned as risks than financial exclusion is. For ML/TF risk or concern increases with the financial exclusion example, in 71 percent of the reports, the use of cash (at levels of the countries. The higher the financial exclusion least in some sectors) was cited as an ML/TF risk or concern, level, the higher the possibility of an MER citing the informal whereas only 38 percent of reports cited financial exclusion as economy, the use of cash, or financial exclusion as an ML/TF an ML/TF risk. Because there are other drivers of cash usage risk or a concern. This, we submit, is a reasonable pattern. and informal economic activity besides financial exclusion, On a positive note, when the financial exclusion is at extreme this finding appears reasonable. The discrepancy between levels, the majority of the MERs consistently cited the use of the references to informal economy and financial exclusion, cash, the informal economy, and financial exclusion as ML/TF which is indicated with trend lines, is declining as the financial risks or concerns. However, more than half of the MER reports exclusion rate increases (right-hand side of the figure). for countries with 10 to 29 percent financial exclusion rates— which in our view still indicates a significant financial exclusion However, the differences among MERs’ coverage of use problem—did not mention the informal economy or financial of cash, informality, and financial exclusion can also be exclusion as risk factors. influenced by the level of attention to each of them by those doing the assessments. The following is a more elaborate The figure also shows another trend of interest: the difference analysis that questions the attention the assessors paid to the in the references to the use of cash, the informal economy, financial exclusion rates. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 15 > > > F I G U R E 2 . 2 - Relationship between Financial Exclusion Rate and its Coverage in MERs Does the MER cites financial exclusion as a ML/TF risk or concern? (Correlation with the financial exclsuion rates) MER cites financial Financial MONGOLIA TRN & TBG THAILAND exclusion as a exclusion MALTA risk or concern rate YES k A 100 90 80 70 60 50 40 30 CAMBODIA COLOMBIA PAKISTAN SENEGAL 20 10 NO B 0 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 Ranking of the study jurisdiction based on their financial exclusion rates Financial exclusion rates (ranked from lowest to highest) Does the MER cite financial exclusion as an ML/TF risk or concern? In figure 2.2, the MERs that cover and do not cover financial exclusion level. Above this level, MERs mostly cover financial exclusion as an ML/TF risk or concern have been plotted against exclusion. The point at which this shift happens is indicated the financial exclusion rates of the jurisdictions in the sample. with the diagonal line k, which is located next to the country The horizontal axis shows the ranking of 85 jurisdictions in the ranked 45th and corresponds to a 32 percent financial sample, from the one with the lowest financial exclusion rate exclusion level. This level can be interpreted as the assessors’ to the one with the highest9. The vertical axis on the left side risk sensitivity to financial exclusion. shows whether financial exclusion is cited in the MER as a risk or concern; the second vertical axis on the right side is the In figure 2.2, the countries in zones A and B are the outliers. financial exclusion rate. The countries in zone B are the MERs in which the financial exclusion rate has not been mentioned as a risk despite its There is a visible shift in the pattern of MER coverage of high level. Table 2.1 provides more details. financial exclusion approximately at the 32 percent financial 9 Findex 2017 did not include the financial inclusion rates of 22 of the 107 jurisdictions in our sample. These 22 are mostly small offshore jurisdictions. The country ranked 85th is Madagascar, with an 82 percent financial exclusion rate. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 16 > > > T A B L E 2 . 1 - Outliers in Zone B in figure 2.2 Country Financial exclusion rate (%) Ranking among 85 jurisdictions Pakistan* 79 82 Cambodia 78 81 Senegal 58 67 Colombia 54 60 Zambia 54 59 Panama 53 58 Tajikistan 53 57 Indonesia 51 55 Bangladesh 50 54 *. In the Pakistan MER, financial inclusion initiatives are referred to, and issues relating to cash and informal or unregulated services are highlighted in various places. The section on structural elements does not use the phrase financial exclusion, but it does mention that many Pakistanis do not use the formal economy and that Pakistan has a large informal, cash-based economy. One of the key findings in Immediate Outcome 1 is that “Except for one financial inclusion-related remittance product, the findings of the NRA have not led to implementation of enhanced or simplified AML/CFT measures or to any exemptions from AML/CFT requirements for lower risk activities.” The last point, in particular, is quite important in the financial inclusion context. However, we still believe that financial exclusion is not covered as a risk or concern in the report, and we included Pakistan in this table, considering that the Pakistan MER itself can be an interesting input to a debate on the adequate coverage of financial exclusion in MERs. In our view, assessors’ sensitivity to financial exclusion should These issues can be attributed to the lack of assessment start at a financial exclusion level much lower than 32 percent. criteria that explicitly require the assessors to consider the Furthermore, as shown in table 2.1, sometimes financial impacts of informality of the economy and financial exclusion exclusion is overlooked even in the MERs of some countries on ML/TF.10 Also, our review of assessor training materials with extreme financial exclusion rates. Also, the analysis shows that the assessor training does not include any specific focuses only on coverage of financial exclusion, and this reference to or emphasis on the risks associated with financial coverage happens mostly in the “country risk context” sections exclusion. Therefore, the coverage of the financial inclusion of the MERs and does not have a tangible impact on the or exclusion aspect is left to the personal awareness and conclusions and recommendations of the mutual evaluations. attention of the assessors. 10 The methodology instructions for assessors include references and cues, such as the reference to the level of financial exclusion as a contextual factor that might affect a country’s effectiveness. Specific references in IO.3 relate to the materiality of different sectors, and in IO.4 assessors are asked to consider the following as a specific factor that could support their conclusions: “Does the manner in which AML/CFT measures are applied prevent the legitimate use of the formal financial system, and what measures are taken to promote financial inclusion?” However, none of the core issues specifically refer to informality or exclusion, and there is no specific reference in IO.1. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 17 2.1.3. How extensively do jurisdictions use exemptions from AML/CFT requirements? The FATF Recommendations allow limited exemptions from The income breakdown of the use of these exemptions AML/CFT requirements when the country can prove that was also analyzed. Figure 2.3 shows a clear trend in the a sector, service, or product poses low ML/TF risks. In its percentage of jurisdictions that apply exemptions increasing analysis of the MERs, we also analyzed how extensively with their income level.12 countries use such exemptions, both across all countries and within different sets of countries based on income levels. The FATF Recommendations allow exemptions from AML/ CFT requirements in proven low-risk situations. Allowing For this analysis, GDP per capita has been used as a simple exemptions can be a powerful tool to promote financial indicator of development level. The study used four income inclusion and encourage the transition to a formal economy categories that are based on the World Bank Group’s GDP in low-income countries, while helping them with efficient use per capita income classification as of fiscal year 2021: (a) low of very limited AML/CFT resources. One could expect to see income is less than US$1,036, (b) lower-middle income is more applications of exemptions in lower-income countries, US$1,036–US$4,045, (c) upper-middle income is US$4,046– as these countries suffer more from financial exclusion and US$12,535, and (d) high income is greater than US$12,535.11 informal economy-related problems. However, the trend is exactly the opposite: our analysis shows that higher-income In general, most countries appear reluctant to apply countries are more likely to use exemptions than lower-income exemptions: fewer than half of the jurisdictions examined countries. More study may be necessary to explain this (43 percent) apply some exemptions. Since exemptions are unexpected outcome. One explanation could be that higher- optional and conditional; they cannot be expected to exist in income countries have regulators who have greater capacity, all countries. However, it is necessary to question whether the awareness, and self-confidence, and who are backed by 57 percent of jurisdictions in the study that did not use any legal protections. Thus, they are more likely to apply a risk- exemptions might nonetheless have low-risk situations that based approach to AML/CFT regulation and supervision. might warrant their use. The observations of subject matter experts working with the jurisdictions (discussed in later parts of this report) support > > > this explanation. Another explanation could be that lower- F I G U R E 2 . 3 - Countries’ Use of Exemptions, by income countries may fear being evaluated as noncompliant if Income Level the assessors do not agree with the exemptions. Income level and exemptions GIABA’s 2018 report about West African countries’ use of know your customer (KYC) practices indicated that financial 100 9 15 16 19 service providers do not take advantage of the flexibility of 90 RBA, which results in suboptimal performance of CDD for Percentage in each income group 80 financial inclusion goals. These institutions also generally 70 use traditional identification and verification processes. 60 According to the report, “Understanding and applying the 50 RBA in a proportionate and calculated way have not been straightforward for many of the institutions” (GIABA 2018, 9). 40 30 The next analysis on SDD also reflects this paradoxical 20 situation. 10 1 7 8 30 0 Low Lower- Upper- High Income middle middle Income Income Income Number of jurisdictions Countries with exemptions Others 11 World Bank Country and Lending Groups database; https://datahelpdesk.worldbank.org/knowledgebase/articles/906519-world-bank-country-and-lending-groups. 12 In some reports, gaps in AML/CFT coverage are referred to as exemptions by the assessors. In such a case, not covering lawyers under an AML system may not be a risk-based decision but just a gap, which does not change the substance of the analysis. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 18 2.1.4. How extensively do jurisdictions use simplified customer due diligence (SDD)? In general, the jurisdictions in this study are more likely to use those jurisdictions. Especially when there is no clear guidance the simplifications, rather than exemptions, that FATF permits. by the supervisory agencies, having only a clause in the AML For example, 83 percent of all jurisdictions analyzed have law does not reassure the private sector about applying CDD some form of SDD, whether discretionary SDD or predefined simplifications. This is an important issue that merits further SDD (figure 2.4). About half of the jurisdictions that have research. predefined SDD have both discretionary and predefined SDD (as a further breakdown of the 52 percent in the chart). > > > F I G U R E 2 . 5 - Jurisdictions’ Use of SDD, by > > > Income Levels of Jurisdictions F I G U R E 2 . 4 - The Use of SDD by Jurisdictions Income level and exemptions 100 Percentage in each income group No SDD Only 5 90 5 5 discretionary 3 17% SDD 80 70 13 5 31% 60 9 50 40 6 30 14 31 20 14 Predefined 10 1 SDD 0 Low Lower- Upper- High 52% Income Middle Middle Income Income Income Number of jurisdictions However, the percentage of jurisdictions that use predefined Predefined SDD Only discretionary SDD No SDD SDD is close to the rate of those that use exemptions. In fact, the jurisdictions in these two groups mostly overlap. Therefore, The more frequent use of exemptions and simplifications by a country that applies predefined SDD is also more likely to higher-income countries is not always motivated by financial apply exemptions. inclusion reasons and does not necessarily mean that high- income countries promote financial inclusion more. For With respect to income levels, higher-income countries have example, some financial centers, where financial inclusion a greater tendency to apply predefined SDD than lower- is not an issue, introduced simplifications that are mostly income countries (figure 2.5). Lower-income countries seem motivated by business rationale. This is a good practice, to give discretion to their institutions to apply SDD instead of provided that these simplifications are based on assessments predefining lower-risk situations in which SDD can be applied. of low risk. Such simplifications are still in line with the risk- However, interviews with some study jurisdictions and the based approach to AML/CFT because the prerequisite for observations of the World Bank experts suggest that most of SDD is not financial inclusion but lower risk. Financial inclusion the time, this discretion is not exercised by the private sector in is only one of the scenarios in which lower risks justify SDD. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 19 2.1.5. Does the tendency toward application of exemptions differ in FATF and FSRB jurisdictions? The study reviewed whether the use of exemptions changed according to a country’s FATF or FSRB membership.13 In this analysis, financial exclusion level is calculated as the average of all members in the FATF and in each FSRB. The jurisdictions that are members of both the FATF and any FSRB were counted only in the FATF group. As figure 2.6 demonstrates, the percentage of FATF member countries using exemptions is much higher than the percentage of FSRB member countries using these exemptions. In terms of percentages, the FSRBs whose members have the highest financial exclusion rates use the exemptions least, and vice versa. > > > F I G U R E 2 . 6 - The use of exemptions in the countries based on FATF and FSRB membership Exemptions vs. Financial Exclusion Rate In FTAF and FSRBs 100 100 Financial exclusion ratio avarage for each group Percentage of study economies in each group 8 4 7 11 6 5 9 3 6 90 90 80 80 70 70 60% 60 60 52% 51% 50% 50 47% 50 44% 40 36% 40 30 27% 30 20 20 10% 10 10 19 6 10 8 3 1 1 0 0 FATF CFATF MONEYVAL APG ESAAMLG GIABA GAFILAT EAG MENAFATF Number of jurisdictions Exemptions No exemptions Financial Exclusion Rate Note: APG = Asia/Pacific Group on Money Laundering; CFATF = Caribbean Financial Action Task Force; EAG = Eurasian Group; ESAAMLG = Eastern and Southern Africa Anti-Money Laundering Group; FATF = Financial Action Task Force; GAFILAT = Financial Action Task Force of Latin America; GIABA = Inter-Governmental Action Group against Money Laundering in West Africa; MENAFATF = Middle East and North Africa Financial Action Task Force; MONEYVAL = The Committee of Experts on the Evaluation of An- ti-Money Laundering Measures and the Financing of Terrorism. 13 The Task Force on Money Laundering in Central Africa (Groupe d’Action contre le blanchiment d’Argent en Afrique Centrale), GABAC, is the youngest FSRB and had not published any reports at the time of this research. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 20 2.1.6. Does the tendency toward application of SDD differ in FATF and FSRB jurisdictions? Here, the same analysis is repeated but in terms of membership of FATF or FSRBs and use of predefined or discretionary SDD. Figure 2.7 shows the comparison with the financial exclusion rate average for the FATF and each FSRB. > > > F I G U R E 2 . 7 - The use of exemptions in the countries based on FATF and FSRB membership SDD vs. Financial Exclusion in FATF and FSRBs 100 100 Financial exclusion ratio avarage for each group 1 4 1 1 3 2 6 3 1 Percentage of study economies in each group 90 90 80 80 5 5 70 70 6 60% 1 60 2 60 50% 51% 52% 50 44% 47% 50 36% 4 40 40 30 27% 30 20 4 20 10% 10 10 2 18 11 10 5 3 4 2 1 0 0 EAG FATF MONEYVAL APG CFATF MENAFATF GAFILAT ESAAMLG GIABA Number of jurisdictions Predefined SDD Only Discretionary SDD No SDD Financial Exclusion Rate Note: APG = Asia/Pacific Group on Money Laundering; CFATF = Caribbean Financial Action Task Force; EAG = Eurasian Group; FATF = Financial Action Task Force; GAFILAT = Financial Action Task Force of Latin America; GIABA = Inter-Governmental Action Group against Money Laundering in West Africa; MENAFATF = Middle East and North Africa Financial Action Task Force; MONEYVAL = The Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism. For predefined SDD, the figure changes a little, but the general A GIABA report about AML measures in the context of trend is very similar to the use of exemptions: FATF countries financial inclusion in GIABA member states indicates more and the countries in FSRBs with lower financial exclusion rigid implementation of AML/CFT controls by large financial levels are more likely to apply SDD measures even though institutions. According to the report, “although national these measures were intended to help countries with higher regulations may allow discretionary use of alternative exclusion levels. Discretionary SDD seems more common in documents to verify customers, institutions tend to limit African FSRBs and the Middle East and North Africa Financial discretion and the types of documents accepted” (GIABA Action Task Force. But as explained in other parts of the 2014, 19). report, discretionary SDD indeed is not being practiced by the financial sector in most developing countries because of the lack of guidance from regulators. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 21 2.1.7. In MERs, what are the most common criticisms about exemptions and simplifications? As shown in figure 2.8, in most of the MERs assessors tended available for SDD, or the assessors do not pay attention to the to criticize the application of SDD for lacking appropriate risk application of SDD by the private sector. assessments that justify the use of SDD. Another frequent criticism was about the lack of suspicious transaction > > > reporting requirements in the case of SDD. According to the F I G U R E 2 . 9 - Assessment of Discretionary SDD in MERs FATF Recommendations, SDD should always be based on lower-risk assessments, but simplified measures should not Criticism in MERs about the SDD by Private Sector be permitted whenever there is a suspicion of ML/TF (FATF (as percentage of countries that apply discretionary SDD) 2012). However, the regulations of 13 percent of the countries that apply SDD did not include the latter provision. Several 100 MERs criticized the country for labeling some regulations as 90 80 simplifications, although they were essentially exemptions.14 70 63% 60 Figure 2.9 shows assessors’ reactions to discretionary SDD 50 (either in assessment of technical compliance or effectiveness). 40 30 25% > > > 20 F I G U R E 2 . 8 - Criticisms of predefined SDD, 12% 10 by share of countries using predefined SDD 0 SDD is not SDD is No comment Most Frequent Criticism in MERs risk based risk based in the report (as percentage of countries that apply pre-defined SDD) 100 In addition to the major issues that were subject to criticism 90 80 and discussed previously, the following are other examples of 70 countries’ MER criticisms of SDD and exemptions: 61% 60 • Exemptions and simplified measures are not based solely 50 on low and lower risk but include other variables such as 40 regulatory burden and the desirability of promoting the 30 risk-based approach: Australia, Canada, Denmark, and 20 11% 13% United States MERs. 10 • Simplified measures are not precisely defined: Andorra 0 MER. SDD is not SDD is indeed SDD does not exclude risk based exemption suspicious • SDD does not cover all financial institutions and designated transactions nonfinancial businesses and professions (DNFBPs) in a consistent way: Sri Lanka MER. A general finding is that MERs include fewer comments • The country has not adopted an RBA, so there has been or criticisms of policies that permit discretionary SDD no implementation by financial institutions or DNFBPs compared with those that mandate the use of predefined based on proven lower risks for financial inclusion or SDD. Interestingly, a high proportion of the reports do not otherwise: Bhutan MER. include specific information about how the simplifications • Exemptions may diminish the application of CDD: were ultimately applied by the private sector and whether Australia MER. the private sector’s use of simplifications were well justified. This may mean that the private sector does not use options A broader compilation of relevant citations from MER reports is provided in appendix C. 14 For example, European Union countries like Belgium, Greece, Hungary, Italy, Norway, Spain, and Sweden were criticized because they had some categorical exemptions that are not based on proven low risk. These cases usually stemmed from the simplified due diligence definition in section 2, article 11-12 of the European Union’s (EU) Third Anti-Money Laundering (AML) Directive. However, this issue was addressed by the EU’s Fourth AML Directive, which required the member countries to have a risk assessment as a basis for any CDD simplifications. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 22 Financial regulatory and supervisory agencies in many 2.1.8. What trends are seen in the coverage developing countries are concerned that any simplifications of financial inclusion in MERs? or exemptions may not be condoned by the FATF or FSRB The FATF’s attention to financial inclusion has increased assessors. Our analysis shows that simplifications or over the past decade and has been integrated into the FATF exemptions are indeed frequently criticized in MERs. The mandate since 2019. As explained in the earlier parts of this main criticism is about the lack of reliable risk assessments report, FATF assessment methodology (2013) also advises as the basis of simplifications—which is a valid basis for the assessors to consider financial inclusion/exclusion in the criticism. However, these deficiencies usually do not have evaluation of the country risk and context. substantial impact on the assessment results (no evidence of an increase in ML/TF risks) and do not lead to a downgrading To examine the trends, we first classified the jurisdictions on of the country. The countries are downgraded mostly for more the basis of their financial exclusion rates and compared the fundamental deficiencies in CDD, such as those related to rates and the mentions of financial exclusion by MERs within beneficial ownership, lack of understanding of client risks, these groups. When we compare the third- and fourth-round or weak CDD by designated nonfinancial business and evaluations (previous and current MERs for the 107 study professions. We did not find any evidence of a simplification jurisdictions), the impact of the FATFs’ increasing attention to that is based on a robust risk assessment being criticized by financial inclusion and the transition to a risk-based approach the MER assessors. The fears of the regulators regarding is clear. As seen in figure 2.10, there is significant progress in mutual evaluations are therefore not validated by the MERs coverage of both the informal economy and financial exclusion examined in this study. in MERs as an ML/TF risk or concern. > > > F I G U R E 2 . 1 0 - The Coverage of Financial Exclusion Risks or Concerns in Third- and Fourth-Round MERs Coverage of Financial Exclusion Risks or Concerns in MERs 100 90% 90 As a percentage of analysed MERs 80 72% 70 60 50 40 30 26% 20 8% 10% 10% 10 0 Countries with less than Countries with 10%—29% Countries with 30%—49% Countries with 50% and 10% fin. exclusion ratio fin. exclusion ratio fin. exclusion ratio more fin. exclusion ratio 3rd Round 4th Round 3rd Round 4th Round When the same analysis is conducted for informal economy risks or concerns, a similar trend can be seen (figure 2.11). The coverage of informal economy risks and concerns in the MERs significantly increased in the fourth round. In general, in both the third and fourth rounds, the awareness about the informal economy is higher than that for financial exclusion. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 23 > > > F I G U R E 2 . 1 1 - The Coverage of Informal or Shadow Economy as a Risk in Third- and Fourth-Round MERs Coverage of Informal/shadow economy as a risk or concern in MERs 100% 100 90 As a percentage of analysed MERs 80 71% 70 60% 60 50% 50 40 30% 29% 30 20 11% 10 0 Countries with less than Countries with 10%-29% Countries with 30%-49% Countries with 50% and 10% fin. exclusion ratio fin. exclusion ratio fin. exclusion ratio more fin. exclusion ratio 3rd Round 4th Round We also conducted a trend analysis of how financial exclusion same trend analysis by clustering the reports in three groups is addressed within the fourth-round MERs (figure 2.12). based on their historical sequence (figure 2.13). This analysis excluded the countries with 9 percent or lower financial > > > exclusion rates and those countries for which the financial F I G U R E 2 . 1 2 - Financial Exclusion as a Risk inclusion and exclusion data are not available. The resulting or Concern in MERs, 2015 to 2020 sample of 60 MERs was grouped using the sequencing of their publication dates: (group 1) first 20 MERs, (group 2) second MERs that include financial exclusion risk/or concerns 20 MERs, and (group 3) last 20 MERs. 100 As a percentage of analysed MERs 90 > > > 80 F I G U R E 2 . 1 3 - Coverage of Financial Exclusion as 70 a Risk or Concern in Group 1,2, and 3 MERs 60 50 40 MERs that include financial exclusion risk/or concerns 30 100 As a percentage of analysed MERs 20 90 10 80 0 2015 2016 2017 2018 2019 2020 70 60 50 The awareness about financial exclusion risks is higher early 40 in the fourth round. Although the decline was followed by a rise 30 20 in 2020, this may not necessarily be a turning point. Because 10 of the limited number of observations per year, the data need 0 to be treated with caution. For example, the limited size of Group 1 Group 2 Group 3 the sample does not allow us to test hypotheses such as whether the rise in 2020 can be attributed to the integration of The coverage of financial exclusion as a risk or concern is financial inclusion in the FATF’s mandate in 2019 or whether around 80 percent in the first group but declined to 50 percent the 2017 updates in the FATF financial inclusion guidance had in the second group and increased very slightly in the third influenced awareness about financial inclusion in MERs. group. This also confirms the decline in the trend compared with the early years of MERs. It remains the case though Given the relatively small numbers of reports in each year, to the earlier assessments were on relatively higher-capacity improve the statistical quality of the analysis we also tried the countries that possibly have lower financial exclusion rates. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 24 2.2. Coverage of Financial Exclusion Risks in National Risk Assessment Reports The FATF Recommendations require all the countries to on ML/TF risk assessment of financial inclusion products. assess and understand their money laundering and terrorist Some of these reports have been published, but most have financing risks as the basis for a risk-based approach to AML/ not. See appendix D for further information on FIRM. All the CFT.15 In practice, this self-assessment exercise is called a reports were written or published in 2014 or later and reflected national risk assessment (NRA). Depending on its quality, an the situation in the countries as of the report dates. NRA can serve as an important source of information for the mutual evaluation assessors. 2.2.1. Coverage of financial exclusion-related risks in NRAs, and the effect on MERs In our research, we also reviewed the coverage of financial Using the same sample of 107 MERs, the author reviewed inclusion issues by countries in their NRAs. In this review, how the prior self-assessment of ML/TF risks linked to financial we covered the reports that are publicly available and the exclusion by each jurisdiction influenced the coverage of nonpublic reports that were shared with the World Bank in financial exclusion risks in the MER. the scope of technical assistance provided. For the latter group, because of the confidential nature of the technical Our analysis shows that the correlation between a assistance documents, this chapter presents the information jurisdiction’s financial exclusion levels and MERs’ coverage and observations in a sanitized way and does not provide of financial exclusion as a risk or concern is 0.34, and the country-specific details unless the reports were published. For correlation between the NRAs’ coverage of financial inclusion/ the publicly available reports, we used the published NRAs exclusion and MERs’ coverage of financial exclusion as a or NRA summaries listed on the FATF website and reviewed risk or concern is 0.23. Both correlations are statistically the documents that are available in English. In overall, more significant; however, the first one is higher, suggesting than 50 NRA reports or report summaries were included in that assessors were more sensitive to higher measures of this analysis. financial exclusion levels in countries than they were to NRAs’ mention of financial exclusion as a risk. With the caveat that Among the jurisdictions that published their full or summarized establishing the causality requires further analysis, both a NRAs, Bangladesh; Cambodia; Chile; Malawi; the Philippines; country’s actual financial exclusion level and the coverage Sri Lanka; Taiwan, China; Uganda, and Zimbabwe covered of financial inclusion/exclusion by their NRA may affect the financial inclusion in a comprehensive way. Australia has done consideration of financial exclusion risks or concerns by the a series of focused risk assessments, some of which closely MER assessors. However, the actual exclusion level seems to relate to financial inclusion, such as “Remittance Corridors: be more persuasive to assessors than the national authorities’ Australia to Pacific Island Countries—Money Laundering views on exclusion as a risk. and Terrorism Financing Risk Assessment 2017” (AUSTRAC 2017). Other countries, including Armenia, Italy, Mexico, 2.2.2. Positive impact of the the United States, and Uruguay, have limited references to World Bank’s FIRM tool financial inclusion in their public NRAs. The remaining public A country’s self-assessment and self-awareness about the ML/ NRA reports that are available in English as of the study date TF risks in the context of financial inclusion and exclusion can (including some countries with high rates of financial exclusion) be expected to guide the coverage of these risks by the MER did not mention financial inclusion or exclusion issues. assessors. The World Bank recommends conducting an ML/ TF risk assessment of existing or planned financial inclusion In addition, for countries that used the World Bank’s products as a stand-alone exercise or under a country’s Financial Inclusion Product Risk Assessment Module (FIRM), national ML/TF risk assessment. To that end, the Bank has standalone financial product risk assessment reports or been using FIRM to help countries develop AML/CFT solutions relevant chapters in their NRAs were reviewed. FIRM is an that support financial inclusion. Many of these financial optional module of the World Bank’s NRA tool, which has been inclusion risk assessments also inform the national financial used by 43 countries. Most of those countries included their inclusion strategies, especially when the risk assessments are findings in the country’s NRA report, while others, such as conducted at the same time or on a parallel track with the Nigeria, Tanzania, and Zambia, produced stand-alone reports formation of a country’s financial inclusion strategy. 15 Proliferation financing has been recently added to FATF Recommendation 1. However, the full implementation of the new standard is yet to start. Therefore, proliferation financing is not covered in this report. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 25 As figure 2.14 shows, the countries that used the World Bank’s also includes selected relevant excerpts from publicly available FIRM tool always covered the financial exclusion-related risks NRA reports. The findings that follow are also supplemented and concerns in their NRA reports. For the group that did with observations of the World Bank experts who supported not use FIRM, the rate is around 20 percent. This analysis these World Bank client countries in their financial product risk shows that the use of FIRM raises the awareness of financial assessments or national risk assessments. exclusion-related risks and leads countries to consistently cover financial exclusion risks and concerns in their NRAs. Most of the financial inclusion For focusing the analysis more on developing countries, which products were assessed as lower risk. constitute the World Bank’s target audience, countries with In most assessments, microdeposits, microloans, and less than a 30 percent financial exclusion ratio were excluded microinsurance products are consistently assessed as lower- from this analysis. risk products in terms of both ML and TF risks. Also, among low-risk products are basic bank accounts under different > > > names, farmer accounts, and small-value agricultural finance F I G U R E 2 . 1 4 - The Effect of Using the FIRM Tool products. Mobile money, electronic money, branchless on NRA’s Coverage of Financial Inclusion banking, and some micro-investment schemes also have frequently been found to be lower risk when their functions Use of FIRM vs. NRA’s Coverage of FI were restricted—for example, with deposit and payment caps and no access to cross-border transactions. 100 90 11 Using a unique approach that focused on selected specific Percentage in each group 80 70 remittance corridors and was enabled by the availability of 60 11 granular statistics on remittances, AUSTRAC’s 2017 risk 50 assessment report, “Remittance Corridors: Australia to Pacific 22 40 25 Island Countries,” found that, in general, the ML/TF risks in the 30 20 assessed remittance corridors were low (see box 2.1). 10 3 0 Used FIRM Not used FIRM Overall Number of jurisdictions > > > NRA covers NRA does not cover B OX 2 .1 : financial inclusion financial inclusion Excerpt from AUSTRAC’s “Remittance Corridors: Australia to Pacific Island Most of the 43 FIRM-based risk assessments were done under Countries—Money Laundering and Terrorism a World Bank financial inclusion risk assessment program that Financing Risk Assessment” “This risk assessment has assessed that, at a was sponsored by the Bill & Melinda Gates Foundation. The national level, the ML/TF risks associated with analysis is also a confirmation of the program’s positive impact. remittances from Australia to PIC [Pacific Island Countries] sent through remittance providers 2.2.3. Insights from the national [are] low. All reporting entities—banks, remittance risk assessments providers, and other financial institutions—that A summary of the observations from World Bank-guided ML/ remit funds to the Pacific should use the information TF risk assessments related to financial inclusion products in this risk assessment to identify, assess, and was already shared by the World Bank, in an annex to FATF’s understand their own ML/TF risks.” guidance on financial inclusion (FATF 2017). An updated version of these findings, augmented with analysis of more reports, is provided in this section of the study. This section Source: AUSTRAC 2017, 31. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 26 Many risk assessments also state that there were never any institutions to be medium. The basis of this assessment is the ML or TF cases in which the financial inclusion products were country’s very weak supervisory oversight and some past fraud abused, as discussed, for example, in box 2.2. cases, especially before the formalization of microfinance institutions in 2011. Although they are low risk, in many jurisdictions financial > > > inclusion products are not subject to simplifications. BOX 2.2: Despite findings of low risk and lack of any ML/TF typologies Excerpt from Nigeria’s Financial Inclusion relating to financial inclusion products, many countries have Risk Assessment Report stringent AML/CFT regulations that lack any flexibility to apply “There are significant amounts of proceeds of crime simplifications. Some of these countries have quite high generated in Nigeria and the money laundering financial exclusion and informal economy rates (see boxes combating ability of the country was assessed to be 2.3, 2.4, and 2.5). medium low during the NRA exercise. However, the controls provided in the guidelines for FI products, especially in the bank and other Financial Institutions sector, is expected to mitigate the ML/TF risk in > > > FI products. There were 4,498 terrorist attacks in BOX 2.3: the country between 2010 and 2014. A trends and Excerpt from Country A’s NRA Report typology report [in] 2013 by the NFIU [Nigerian Know Your Customer (KYC) in Low Income Groups Financial Intelligence Unit] indicates that terrorist financing is very minimal in Financial Institutions “…in order to qualify to have an FI product accord- and that most terrorist funds are channeled through ing to the rules and regulations in Country A, pho- the informal sector and DNFBPs. In addition, to identification (passport, national identification there are no records of suspicious transactions card, driving license, etc.), address verification, involving FI products. This buttresses the need to telephone/fax numbers etc. must be obtained from encourage financial inclusion to reduce the volume potential customers to enable banks and other in- of transactions in the informal sector (27). stitutions to fulfill their KYC requirements. “There are no reported cases relating to any “Thus, as it stands at present irrespectively of suspicious financial crime perpetrated using these whether the customer is of low, medium, or high types of products. The total volume and value risk, conforming to potential ML/TF or involved in of transactions are very low due to customers’ fraud, the KYC requirements are identical… income level, set thresholds, and customer KYC requirements. However, possibility of suspected “Hence low-income groups (that is, low-income financial crime such as fraud cannot be totally persons, farmers, garment workers) who are gen- ruled out (28).” erally low risk are unable to furnish [the] above requirements and hence get excluded from partici- pating in the financial inclusion products. The cur- Source: Nigeria 2016. rent legislation is a hindrance for low-income fami- lies participating in available financial products.” Some reports indicate the involvement of microfinance institutions in West Africa in some ML cases.16 As an interesting example, Ghana’s NRA report found the risk of microfinance Source: World Bank internal records. 16 Outside the NRA reports, the number of ML/TF cases that may be related to these products is very limited. GIABA’s 2018 annual report mentions the use of microfinance institutions in some money laundering cases in West African countries. However, the scale and nature of these cases are not clear in the report, and these cases may involve fraud schemes by informal microfinance providers. It is also important to note that microfinance institutions do not have a commonly agreed definition, and the functions and scale of their transactions can differ from country to country. For example, in some countries any type of small-scale moneylender can be classified as micro- finance. In some regions, especially in Africa, these operate as informal or semiformal institutions, but in some other countries they function almost like banks. Therefore, when assessing the microfinance industry, it is very important to understand the definition and functions of these in the country context. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 27 The regulatory framework relating to CDD in countries can be more onerous than the requirements of the FATF >>> Recommendations. BOX 2.4: In some countries, the country’s regulatory framework is Excerpt from Country B’s NRA Report even more onerous than the requirements set out in the “The Know-Your-Customer (KYC) requirements FATF Recommendations and does not contain the flexibility for opening a bank account such as identity cards, incorporated into the FATF Recommendations and its relevant passports, proof of residence, and pay slips were guidance. Examples include requirements to verify the also cited as some of the significant barriers to address, document the purpose, or provide a tax ID number many potential customers… or secondary ID document regardless of the amount and level of risk of the transactions. This is more visible in countries with “Chief among the major recommendations is exchange control regimes. the need to amend the Money Laundering and Proceeds of Crime Act [Chapter 9:24] to provide One common area that is subject to overregulation is the for simplified KYC/CDD requirements for low-risk address verification requirements. Most countries tend to financial inclusion products and enhanced KYC/ include this in their CDD requirements, although address CDD for higher risk products.” verification is not mentioned in Recommendation 10 at all and is mentioned in Recommendation 14, on wire transfers, in Source: World Bank internal records. an indirect and optional way. Address infrastructure in many developing countries (especially in Sub-Saharan Africa) is extremely weak, and address verification requirements in > > > the countries are disconnected from many countries’ reality. BOX 2.5: Although they usually take place in an AML/CFT legal Excerpt from Uganda NRA Report framework, address verification requirements frequently stem [Anti-Money Laundering Act and Regulations] “set from other concerns related to exchange and tax regulations the criteria for establishing the identity of different or fraud risks. Address verification is one of the persistent kinds of persons and customers before establishing barriers to financial inclusion (see box 2.6). a business relationship. These include a National Identification Card or an alien’s Identification Card, whichever is applicable. In addition, the prospective customers are required to provide details of the > > > residential address, telephone contact, fax number, BOX 2.6: postal address and e-mail address, an introductory Experience of a World Bank Team in Country C letter from the employer or a senior government The financial exclusion rate in country C is at official attesting to the identity of the person, a tax extreme levels, and progress in financial inclusion identification number where applicable, a sample has been slow. The country’s AML/CFT law is signature and thumb print. These documents must prescriptive about the customer due diligence (CDD) be obtained from a potential customer to ensure requirements and contains a lengthy list of CDD that KYC requirements are sufficiently fulfilled.” procedures that are applicable to all reporting entities. These requirements include address verification. “This is the present position in Uganda and irrespective of whether a customer is low, medium, or However, the address infrastructure in the country high risk, the KYC requirement in terms of potential is poor, and a credible survey done in the country money laundering/terrorist financing is identical.” found that more than 80 percent of the population has difficulty verifying their address. An attempt to “This blanket requirement may hinder the ability simplify CDD requirements has been on hold for of certain segments of society, such as low-income the past three years, and interviews with country earners, persons living in rural areas like farmers, and authorities reveal that this is probably due to persons with disabilities, to access and use financial resistance from financial supervision authorities. services as they may not possess the prerequisite In the interviews, the authorities expressed their identification documents required to establish a concerns about the mutual evaluation and believe relationship with financial service providers.” that financial institutions in the country cannot apply SDD due to FATF’s assessment criteria 1.12. Source: Uganda 2016, 186. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 28 Financial exclusion feeds informality. Regulators are reluctant to allow CDD simplifications Some reports contain information on how the stringent rules or AML/CFT exemptions. may drive the financially excluded population to the informal Although some NRA reports recommended that the country economy and its players (see boxes 2.7 and 2.8). amend the laws and regulations to allow SDD or tiered CDD, our interactions with country authorities revealed that these recommendations were not pursued or implemented most of the time. > > > BOX 2.7: In general, the regulators are reluctant to develop innovative Excerpt from Country D’s NRA Report SDD measures out of concern that AML/CFT assessors “Many hinterland, mining and farming communities will not condone their risk-based approach. Sometimes, experience access problems; not only where concerns about fraud or the country’s exchange regime also financial services are concerned but for some contribute to this reluctance. Some regulators do not have other basic services. Residents have, over time, a full understanding of an RBA or the capacity, expertise, adopted informal ways of meeting these needs. or confidence to fully implement it. Thus, they find it more These solutions often come with increased risk convenient to not allow CDD simplifications at all. and create increased opportunities for launderers and financers of terrorism. To reduce or mitigate In general, banking supervisors and financial intelligence units these risks traditional financial services must be have a more conservative stand than financial inclusion policy encouraged in these communities at reasonable makers and do not provide for simplifications and exemptions costs through innovative means. The lack of in the regulations and guidance they issue. Although financial business incentives to invest in these areas could inclusion teams in the central banks are more open to be reduced using technology, such as mobile simplifications to support financial inclusion, the approach of banking and mobile payment services.” banking supervisors and financial intelligence units usually prevails. Source: World Bank internal records. Not surprisingly, this reluctance is much more prominent for exemption. Countries tend to not see exemption as an option, even for very low-risk financial inclusion products. > > > For example, many African countries have savings and credit BOX 2.8: associations or cooperatives, or similar schemes under Excerpt from Sri Lanka NRA Report different names: SACCO (Savings and Credit Cooperative “FI products are not offered to and not used by Society), ROSCA (Rotating Savings and Credit Association), non-resident and/or non-citizen customers. If they ASCA (Accumulating Savings and Credit Association), VSCA want to open an account in Sri Lanka they have (Village Savings and Credit Association), and others. They to adhere to KYC requirements and exchange are small, closed financial schemes where low value amounts control procedures. Most of immigrant workers are collected from and loaned to community members. Often, employed in the country have not used formal these schemes operate as informal or semiformal institutions, financial system to transfer funds.” and their regulators face a dilemma when they want to formalize them. Because they are involved in savings and Source: Sri Lanka 2014, 42. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 29 lending transactions, they fall within the FATF’s definition of exemptions would be useful. The 2017 additions to the FATF a “financial institution” and become subject to a full range of financial inclusion guidance have been helpful, but this study AML/CFT obligations, which they cannot implement practically. indicates that more is needed (see box 2.9). The same applies to microfinance institutions. Many of these are very small-scale institutions with low capacity and low ML/TF risks, but they are subject to the full set of AML/CFT > > > obligations, including institutional ML/TF risk assessments. BOX 2.9: Experience of a World Bank Team in Country E Rule-based measures and their effective implementation Country E has stringent AML/CFT laws and are important as a basis for RBA; however, [for example] in regulations that allow no flexibility for low-risk West African countries, most regulators still rely on traditional situations. Around 60 percent of the adult population supervision methods while assessing AML/CFT compliance. does not have access to a formal financial institution. As one review stated, “Due to the fact that regulators enjoy monopoly of control in their various subsectors, they do not The World Bank team that supports the country have the urge to step out of their comfort zones to keep up in financial sector regulation and supervision with the pace of change in the industry” (GIABA 2018, 17, 22). capacity building advised the country to relax the stringent CDD requirements to allow basic bank According to GIABA, the KYC/CDD-related documents from accounts with a low cap and limited functions as authorities show strict implementation of AML/CFT measures a way to increase financial inclusion of low-risk in the countries in question (GIABA 2014). This strict approach clients and to reduce the informal economy. The is reinforced in the regulatory and supervisory guidance World Bank also offered support to the country in (GIABA 2018, 15, 28). conducting the risk assessment of the product and designing the product in a way that would ensure Some ambiguities in the FATF Recommendations may lower ML/TF risks. The banking supervision also have an impact on the reluctance of regulators to authority objected to the proposal and defended allow simplifications and exemptions. The applicability of the stringent CDD requirements that were in force simplifications and exemptions to different components as being the best for the country. of CDD, as well as other AML/CFT requirements, such as suspicious transaction reporting, monitoring, institutional risk assessment, and compliance monitoring, is not always clear in the interpretative notes. There are several valid questions In some countries, there is no or very limited dialogue between related to efficiency in that regard. For example: Do all the the financial intelligence unit and the governmental department relevant obligations need to be imposed on all small-scale, that specializes in the promotion of financial inclusion. These low-risk institutions, and is there adequate evidence that they two entities may be working in complete isolation. Ongoing are all needed? Can some of these functions be carried out by dialogue and cooperation is needed between these two key shared utilities and monitoring mechanisms? Clearly, without stakeholders. That dialogue should also extend to other eroding the existing principle-based approach and existing relevant stakeholders, including financial sector supervisors, flexibility in the FATF Recommendations and interpretative telecommunication regulators, and national ID authorities. notes, adding more FATF guidance on simplifications and EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 30 Some common problems discourage the provision of FI products, especially by banks. Factors that reduce the appetite of financial institutions to provide FI products include (a) high AML/CFT compliance costs; (b) stringent, opaque, or conflicting regulatory requirements; (c) lack of clear guidance from regulatory agencies about the risk-based approach to AML/CFT and the application of SDD or CDD exemptions; (d) inconsistencies in the regulatory framework for different sectors; and (e) lack of willingness to use FI products and lack of encouragement by supervisors for provision of FI products. Banks, in particular, tend to see financial inclusion products as high-cost, low-profit products with limited cross-marketing or business expansion potential. Nonbank small-scale providers of these products are also seen as high-risk (and high-cost) and low-profit clients (boxes 2.10, 2.11, and 2.12). > > > > > > B OX 2 .1 0 : B OX 2 .1 1 : Excerpt from Sri Lanka NRA Report Excerpt from Uganda NRA Report “Of the responses received, it was observed that “It is important to note that section 6(e) of AMLA only a few institutions have FI products, and [the] gives accountable persons the discretion to apply majority of the financial institutions do not offer to each of its customers due diligence measures FI products. According to the survey, FI products on a risk sensitive basis depending on the type of not being in line with the business model was customer, business relationship or transaction, in cited as the major reason for non-availability of FI certain circumstances. Therefore, in cases where products. The survey also highlighted the fact that risks are deemed low, accountable persons may some institutions have not clearly understood the apply reduced or simplified customer due diligence. objective of FI products. Some financial institutions There is need to put in place clear procedures have indicated that FI products were not offered by for identifying and determining which products, them due to procedures adopted to comply with services or customer should qualify for reduced or KYC requirements. It is therefore observed that simplified customer due diligence” (186–87). the existing AML/CFT legislation has discouraged financial institutions to introduce FI products.” “Of the 10 institutions that do not offer financial inclusion products, three (3) stated that financial inclusion products were not in line with their core Source: Sri Lanka 2014, 40. business model, three (3) indicated that they had plans to start providing FI products, one institution found it difficult to reach customers as a hindrance to provision of FI products (192).” Source: Uganda 2017. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 31 > > > > > > B OX 2 .1 2 : B OX 2 .1 3 : Experience of a World Bank Team in Country F Excerpt from the Philippines NRA Report A World Bank team has been providing capacity- “In 2014 to 2016, The Economist Intelligence Unit building support to the financial sector regulation recognized the Philippines as the best in Asia and and supervision authorities in country F. The team top three globally in terms of having a conducive meets with various financial supervision authorities environment for financial inclusion” (Philippines and notices that it is the first time that the financial 2016, 146)… intelligence unit and the experts from the financial inclusion division have come together and met “…this environment, (characterized by enabling each other. policies and regulations), catalyzes the development of a financial system that serves not only the relatively In the country, the electronic money regulation well-off clients and big businesses, but also the poor, was recently issued and is being enforced by low-income population that are currently unbanked the telecom authority, which is the regulator or underserved” (Philippines 2016, 79). of the mobile money sector. Electronic money regulations allow tiered CDD, in contrast with the “Proportionality is the key in defining the regulatory banking regulations, which do not contain any approach for financial inclusion. Useful innovations simplifications or tiered approaches. During the on- need not be stifled but instead be allowed to site visit to the country, the World Bank team also operate in an environment where the risks meets with the private sector. The representative of associated with such innovations are adequately a bank reports that it was interested in providing a understood and addressed, and where there is a financial inclusion product with some simplifications judicious and proportionate application of sound and appealed to the financial sector regulation principles. For these to work, it is important that all and supervision authority for harmonization of players and financial service providers are properly the banking law with the electronic money law to and proportionately regulated to ensure consumer contain the same flexibilities. These requests were protection, financial system stability and integrity.” dismissed by the banking supervision authorities. The bank later abandoned its plans to introduce the Source: Philippines 2016, 147. planned product. > > > NRA reports contain several potential solutions B OX 2 .1 4 : to incentivize the provision of FI products. Excerpt and Information The NRA reports contain several potential solutions to from Country G’s NRA Report incentivize banks and other financial institutions to provide “The possibility to devise a suitable mechanism for FI products. However, it is not clear whether these NRA keeping check on transaction limits on [an] industry- recommendations have been implemented by the countries. wide basis should be explored in consultation with In addition to AML/CFT simplifications, these solutions include the market.” … leveraging new technologies, introducing limits to products to qualify them as low risk, introducing tax incentives, and “The government of the country sponsored a number requiring the firms to open a certain percentage of new of guarantee facilities and subsidized lending branches in rural and underserved areas (see boxes 2.13, schemes aimed at encouraging lending to the 2.14, and 2.15). underserved segments.” EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 32 ID documents can be necessary and useful, it is important to intensify the efforts for sustainable solutions. Considering the > > > massive benefits, not only for financial inclusion but also for B OX 2 .1 5 : social and economic inclusion and development, it is important Quote from Uganda NRA Report to prioritize the development of digital IT systems and their use “Government should provide incentives to financial for electronic know-your-customer (e-KYC) purposes. service providers that implement strategies that target the excluded population. For instance, Developments in the digitalization of national ID systems and government should provide tax breaks to financial the availability of e-KYC solutions can facilitate smooth, low- service providers that offer services in rural areas or cost, and reliable ID identification and verification. Because the those that have products targeting the marginalized. number of countries that have established or are working on establishing digital ID systems is still relatively low, the global “Policies should be put in place to allow for simplified significance of the impact on financial inclusion is yet to be customer due diligence for low risk products, while seen. In some countries, the lack of ongoing dialogue among financial service providers should be encouraged to relevant stakeholders has led to situations in which there is practice differential pricing on categorized sectors almost complete coverage with digital IDs (including for poor such as low-income earners. To increase uptake and disadvantaged people), but financial institutions still need to and usage of formal financial services, government require a broad range of documents for customer identification should ensure that all payments made to citizens, and identity verification (for example, a letter from an employer). such as social benefits and salaries, are channeled Moreover, in some contexts there is a need for interagency through formal financial service providers.” dialogue when developing the legal framework for using national IDs to ensure that AML/CFT and financial inclusion issues are Source: Uganda 2017, 189. addressed. This dialogue is also important when developing the technical and financial conditions for financial institutions to be Digital ID systems have the potential to increase able to perform e-KYC. financial inclusion. Rapid advances in information technologies come with new Some NRA reports (for example, Nigeria and Uganda) promises for financial inclusion. As recognized by the FATF,17 show that even if a country has established or is establishing wider use of digital ID systems in developing countries can help a national digital ID system, it cannot be used effectively tackle the traditional challenges of CDD documentation while for customer verification and e-KYC until the majority of the improving the efficiency and reducing the costs of financial population have been duly registered and have received services. However, the right design and implementation of their ID cards, and until the verification devices and access digital ID systems are key to achieving these benefits. to verification databases become available to the institutions. The cost structure of the access to verification devices The use of alternative ID documents (such as employee and databases can also hinder utilization of Digital ID for ID, and student ID) can serve as a solution in low-capacity customer identification and can result in the exclusion of countries with ID infrastructure problems. Although alternative smaller financial institutions. 17 The FATF issued Guidance on Digital Identity in March 2020; see https://www.fatf-gafi.org/publications/fatfrecommendations/documents/digital-identity-guidance.html. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 33 2.3. Supplement on Expert Opinions Under the scope of this study, to facilitate consultation and and 46 percent thought that only some slight revisions were incorporate inputs from subject matter experts and other needed to fully accommodate financial inclusion, 55 percent stakeholders, the World Bank organized a workshop on September were of the view that the FATF was not vocal enough in 29, 2020. In addition, a short survey was done with 39 experts encouraging financial inclusion. Experts expected to see among various stakeholders who had intensive involvement and the FATF have a more encouraging and open stand on the practical experience on financial inclusion, including those who importance of financial inclusion and the flexibilities to support attended the workshop. The survey participants were mainly it. According to the experts, the recommendations are not from the World Bank, International Monetary Fund (IMF), CGAP, insufficient in themselves, but the FATF’s tone and guidance and relevant nongovernmental organizations (NGOs) and mostly are overly cautious and discourage countries from exploring had backgrounds in AML/CFT, financial inclusion, and financial the use of simplifications and exemptions.18 supervision. Of those, 72 percent were directly involved in the implementation of financial inclusion projects, 67 percent were The experts were surveyed about following two key issues, very familiar with AML/CFT, and 33 percent were partially familiar among other questions: (a) the three most important with AML/CFT. The most relevant survey results are presented impediments to financial inclusion in general, and (b) the three here. Please see Appendix E for survey questions. biggest challenges related to the FATF 40 Recommendations in context of financial inclusion. The answers, set out in figure Although 37 percent of the participants thought that the FATF 2.15, were not surprising. Recommendations fully accommodated financial inclusion > > > F I G U R E 2 . 1 5 - The Experts’ Opinions about Impediments to Financial Inclusion Three most important impediments to financial exclusion in general: Share of responses, % Awareness, literacy, and cultural issues 18% Supply-related issues (i.e., lack of profitability/feasibility for service providers) 17% Infrastructure- and technology-related issues 17% Demand-related issues (i.e., poverty and lack of need for finance) 14% Inflexibilities in global standards and relevant compliance costs on service providers 13% Privacy concerns; lack of confidence in financial institutions or state agencies 11% Others reasons 9% Three biggest challenges in FATF 40 Recommendations & financial inclusion context: Share of responses, % Understanding and implementation of the recommendations by countries 34% Fear (that the FATF assessors may find exemptions or simplifications noncompliant) 29% Capability and experience of FATF and FSRB assessors to assess financial inclusion context 16% Lack of guidance on and communication of good practices 15% Inadequate emphasis on financial inclusion in FATF Recommendations and publications 5% Inflexibilities or stringencies in the recommendations 1% The incidence of those who see the FATF Recommendations as a major problem is minimal. Rather, most experts think that the main problems are related to countries’ understanding and implementation of the recommendations, and the concerns about the assessors’ reactions during the mutual evaluations. 18 This finding is based mainly on the views expressed by the experts in the survey or during the study workshop. The study did not aim to conduct a thorough review of FATF publications. This could be the subject of a stand-alone future study. However, a quick example of this very cautious language is the reference to “strictly limited and justified circumstances” in the Interpretative Note to Recommendation 1 / paragraph 6.a.2. This phrase is somehow repetitive with the condition of “proven-low risk” and makes the clause forbidding rather than being conducive to application of exemptions. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 34 The survey also sought the experts’ views of the cost implications of implementing AML/CFT requirements on the providers of financial inclusion products and services. Compliance costs might affect financial inclusion in two ways. It might reduce the demand for financial inclusion products by increasing the transaction cost for the end user, and it might reduce the supply of those products by cutting the profit margin. The majority of the experts think that the AML/CFT costs are too high for the providers of the financial inclusion products (figure 2.16). > > > FIGURE 2.16 - Distribution of Responses about the Cost of AML/CFT Requirements for the Providers of Financial Inclusion Products and Services High 57% Prohibitively High 11% Low Medium 20% 32% Because underserved or unserved people generally reside AML/CFT requirements. Regarding most of the obligations, in rural and less-populated areas, it becomes very costly for only half of the experts think that the small institutions can financial institutions to provide access to financial services comply with the requirements. Most experts think that through traditional channels. Small-scale local financial service the small-scale institutions will have serious challenges, providers, agents, and mobile money network operators may particularly in understanding and assessing their TF risks have greater efficiencies in reaching out to financially excluded and proliferation financing noncompliance risks (figure 2.17). people in these areas. However, these may have much lower These small-scale providers are also thought to be incapable capacity than banks and lack the economies of scale of the of following and understanding the regulations and guidance large institutions. To consider this factor, the survey sought issued by the financial intelligence unit (FIU) and AML/CFT feedback from the experts as to whether small-scale providers supervisors in a timely manner. of financial inclusion products had the ability to comply with EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 35 F I G U R E 2 . 1 7 - Survey Responses on Whether Small-Scale Providers of Financial Inclusion Products Can Comply with AML/CFT Requirements The percentage of experts who think these small institutions can comply with each obligation Monitoring and analysis of unusual transactions 100 90 80 Assessing their proliferation Identification of foreign or domestic financing noncompliance risks 70 politically exposed persons (PEPs) 60 60 50 40 50 30 Assessing their terrorist 20 Cross-checks with UNSC List of financing risks 10 terrorist persons and entities 20 10 0 40 40 Assessing their money 50 Training their staff and agents laundering risks on AML/CFT requirements 20 40 60 Keep reliable records Identifying and reporting at least for last 5 years suspicious transactions Follow and understand the regulations and guidance (in a timely way) Note: UNSC = United Nations Security Council. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 36 3. >>> Conclusions and Recommendations Based on the analysis of 107 mutual evaluation reports (MERs) published by the Financial Action Task Force (FATF) and FATF-style regional bodies (FSRBs) during 2014–21, reviews of national money laundering and terrorist financing (ML/TF) risk assessments of more than 50 jurisdictions, and the experience and observations of experts from the World Bank and other stakeholders, this study reached the following conclusions and recommendations. The FATF’s attention to financial exclusion is increasing, but the coverage of financial exclusion aspects in MERs is still not satisfactory. References to financial inclusion in the FATF’s 2013 assessment methodology, the FATF Guidance (FATF 2017) on financial inclusion, the recognition of the importance of financial inclusion in the FATF’s 2019 mandate, and the FATF’s Guidance on Digital Identity (2020) are important developments that show the organization’s increasing attention to financial inclusion. In addition, the fourth round of MER reports showed a significant leap in the coverage of financial exclusion as an ML/TF risk or concern compared with the third round. However, the progress is still not satisfactory. The sensitivity of the assessors to financial exclusion is low where the financial exclusion rate in a jurisdiction is less than about 30 percent. Although it increases where financial exclusion rates are higher, the attention to financial exclusion is not always consistent. Financial exclusion risk was, for example, overlooked in the MERs of countries with severe financial exclusion rates, such as Pakistan (79 percent), Cambodia (78 percent), Senegal (58 percent), Colombia (54 percent), and Zambia (54 percent). But a more important issue is the substance of the coverage. Even where financial exclusion was discussed in an MER, it generally had no discernable impact on the assessment itself, and relevant recommended actions by assessors are rare. The FATF assessment methodology has no explicit criteria among core issues that require the assessors to assess the possible impact of stringent AML/CFT measures on financial inclusion or exclusion. As a result of this gap, the consideration of financial inclusion or exclusion depends mainly on the personal knowledge and awareness of the assessors. More attention to financial inclusion in assessor training could increase their level of awareness. A more fundamental solution, however, would be to integrate the financial inclusion aspect into the assessment criteria in a more explicit way. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 37 compliance monitoring, is not necessarily clear in the interpretative notes. Without eroding the existing principle- >> Recommendation: based approach and flexibility in the FATF Recommendations The FATF could explicitly cover the potential and interpretative notes, adding more FATF guidance on adverse impacts of stringent AML/CFT rules on simplifications and exemptions would be useful. financial inclusion in its assessor training and, more importantly, in its assessment methodology for mutual evaluations. Other stakeholders can support the FATF in developing these training materials. >> Recommendation: Concise, comparative, and up-to-date “country fact The FATF could consider developing guidance that sheets” containing financial inclusion data could focuses solely on simplifications and exemptions. also be made available to assessors. This guidance might include selected case studies, good practices, and examples of innovative solutions by higher-capacity countries. FATF Recommendations have the flexibility to support a risk-based approach to AML/CFT; however, the very cautious tone about simplifications and exemptions can The countries that most need the AML/CFT flexibilities be a disincentive for regulators. use them least. The results of our survey of experts from the World Paradoxically, the use of the exemptions and simplifications Bank, other international organizations, and stakeholder decreases with the income level of a country. Low-income nongovernmental organizations, and views expressed during countries that need these exemptions and simplifications the study workshop indicate that most experts find the FATF most to formalize the informal financial market and tackle Recommendations adequately flexible to support financial financial exclusion generally do not use the simplifications inclusion. But the same group of experts thinks that the FATF and exemptions. The World Bank team’s research and field is not vocal and encouraging enough about the use of CDD experience show that exemptions, especially, are perceived simplifications and exemptions to support financial inclusion. as untouchable and are not being used by the countries even The FATF’s very cautious language may discourage the for very low-risk sectors and low-risk products. The underlying regulators from allowing simplifications and exemptions. This reason for that restraint is the fear of mutual evaluations and finding is based mainly on the views of a relatively small group the issues related to regulatory and supervisory capacity in of (39) experts. This result can be further examined in future lower-capacity countries. studies and through broader surveying of experts, regulators, and the private sector. Fear of mutual evaluations, which frequently underlies avoidance of CDD simplifications and exemptions, is unjustified. Financial regulatory and supervisory agencies in developing >> Recommendation: countries are concerned that any simplifications or exemptions The FATF could reconsider its too cautious tone may not be condoned by the FATF or FSRB assessors. Our regarding simplifications and exemptions in its analysis shows that simplifications or exemptions are indeed interpretive notes, guidance documents, and public frequently criticized in MERs, and that the main criticism is statements. There should be more constructive about the lack of reliable risk assessments as the foundation of and direct communication about simplifications and simplifications or exemptions, which is a valid basis for criticism. exemptions, and more encouragement of their use However, these deficiencies usually do not have a substantial in low-risk situations and of the use of innovative impact on the assessment results (i.e. significant increase in and collaborative mechanisms that can bring ML/TF risks) and do not lead to a downgrading of the country. efficiencies and that support financial inclusion. The countries are downgraded mostly for more fundamental deficiencies in CDD, such as those related to beneficial ownership, lack of understanding of client risks, or weak CDD The applicability of simplifications and exemptions to different by designated nonfinancial businesses and professions. We components of customer due diligence (CDD), and to other found no evidence that MER assessors criticized a simplification AML/CFT requirements, such as suspicious transaction that was based on a robust risk assessment. The fears of the reporting, monitoring, institutional risk assessment, and regulators and supervisors regarding mutual evaluations are therefore not validated by the MERs examined in this study. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 38 Building awareness and capacity of the regulators and Address verification is a persistent issue that continues supervisors is fundamental to a genuine risk-based to hamper financial inclusion. approach that accommodates financial inclusion. One common area that is subject to overregulation is the One of the common challenges is awareness- and capacity- address verification requirements. Most countries tend to related issues in the regulatory and supervisory agencies in include this in their CDD requirements, although address implementation of a risk-based approach (RBA). The agencies verification is not mandatory in the FATF Recommendations. of low-income countries lack the training, experience, and Address infrastructure in many developing countries (especially confidence to apply the RBA, and therefore they tend to be in Sub-Saharan Africa) is extremely weak, and mandatory too stringent in AML/FCT regulations. The lack of proper legal address verification prescribed in the laws is disconnected from protection for the supervisors may also be a reason for this the reality in many countries. Address verification continues to risk-averse stance. Developing countries are lagging in the be one of the persistent barriers to financial inclusion. implementation of an RBA, and the gap is increasing, as is evident in the MERs. Lower-capacity countries frequently delegate the >> Recommendation: The FATF could clearly communicate that implementation of an RBA and simplifications completely address verification is not among the minimum to the private sector without guidance and sometimes with requirements in the FATF Recommendations ambiguities in the regulatory framework. Our research found that in such cases, the private sector is reluctant to apply and that inappropriate address verification simplifications. requirements may create financial exclusion risks and undermine AML/CFT objectives. >> Recommendation: Digital ID systems are promising but Lower-capacity countries require more support are still underutilized for AML/CFT. for awareness raising and capacity building for Although recognition of alternative identification documents regulators and supervisors to help them implement a can be necessary and useful in expanding financial inclusion, risk-based approach to AML/CFT. The World Bank, it is important to intensify the efforts for permanent solutions. the International Monetary Fund, and the Alliance Considering the rapid advances in digital technologies and for Financial Inclusion (AFI) already have technical their massive benefits not only for financial inclusion but also assistance programs on these topics, which can be for social and economic inclusion and development, countries prioritized and better resourced, if and as needed. should prioritize the development of digital ID systems and their The FATF Training and Research Institute and use for electronic know-your-customer (e-KYC) purposes. other stakeholders may also prioritize such capacity building activities for developing countries. >> Recommendation: More capacity building is needed on the use of The lack of cooperation and agreement among financial digital ID systems to support AML/CFT functions inclusion policy makers, financial intelligence units, and and to develop e-KYC solutions. This step should financial supervision authorities is another common problem in include strengthening the coordination among many countries. The resistance to simplifications often comes financial supervisors, financial intelligence units, from financial sector supervisors or financial intelligence units. financial inclusion authorities, and national ID agencies. >> Recommendation: The FATF could revise the assessment criteria Countries’ self-assessment and awareness can guide a about domestic cooperation in its assessment better understanding of financial exclusion risks. methodology to include coordination between The relationship among ML/TF risks, financial exclusion, and AML/CFT and financial inclusion authorities. informal economies is not always fully analyzed and understood by the countries themselves. A country’s awareness about EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 39 these interactions can also guide the MER assessors, (service provider) behavior. Direct barriers related to CDD who can use a country’s own national risk assessment to documents and access requirements, which are related more understand the country context, as appropriate. Our research to the demand aspect, have been more extensively researched, suggests that coverage of financial exclusion risks in a but the impact on service providers’ operational costs and country’s national ML/TF risk assessment is a good practice supply behavior has not been adequately studied. Most of and has a beneficial effect on coverage of those risks in mutual the surveyed experts believe that AML/CFT compliance costs evaluation. are too high, especially for small-scale financial institutions, discouraging them from providing financial inclusion products. Some research was triggered by the significant incidence of risk-related refusals by formal financial services in recent >> Recommendation: years, commonly known as de-risking. However, further Countries are encouraged to deepen their empirical research and financial support for such research understanding of the relationships among ML/TF are needed. risks, AML/CFT measures, financial exclusion, and the informal economy and to conduct a specific risk assessment focused on financial exclusion, and financial inclusion products and services. >> Recommendation: The World Bank’s financial inclusion product International organizations, NGOs, and national risk assessment (FIRM) tool can be useful for authorities could allocate more resources for this purpose and can be made public after some assessing the impact of the AML/CFT measures on improvements and with more guidance for self-use financial inclusion and informal economies. These by countries. groups should also deepen their engagement with academia in this field. Such studies should ideally cover the impacts of AML/CFT measures on financial inclusion through both demand (user) Impact of AML/CFT rules on financial inclusion and supply (service provider) behavior. through the supply side needs further attention. Implementation of the FATF Recommendations may affect financial inclusion through both demand (user) and supply EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 40 A. >>> Appendix A. Mutual Evaluation Reports by FATF and FSRBs That Are Used in This Study EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 41 (All based on FATF’s 2013 Assessment Methodology) Jurisdiction Report Date Jurisdiction Report Date 1 Albania Dec/18 55 Madagascar Sep/18 2 Andorra Sep/17 56 Malawi Sep/19 3 Antigua and Barbuda Jul/18 57 Malaysia Sep/15 4 Armenia Jan/16 58 Mali Mar/20 5 Australia Apr/15 59 Malta Jul/19 6 Austria Sep/16 60 Mauritania Nov/18 7 Bahamas, The Aug/17 61 Mauritius Jul/18 8 Bahrain Sep/18 62 Mexico Jan/18 9 Bangladesh Nov/16 63 Moldova Jul/19 10 Barbados Feb/18 64 Mongolia Sep/17 11 Belarus Dec/19 65 Morocco Jun/19 12 Belgium Apr/15 66 Myanmar Sep/18 13 Bermuda Jan/20 67 New Zealand Feb/21 14 Bhutan Oct/16 68 Nicaragua Oct/17 15 Botswana May/17 69 Norway Dec/14 16 Burkina Faso May/19 70 Pakistan Oct/19 17 Cabo Verde May/19 71 Palau Sep/18 18 Cambodia Sep/17 72 Panama Jan/18 19 Canada Sep/16 73 Peru Feb/19 20 Cayman Islands Mar/19 74 Philippines Oct/19 21 China Apr/19 75 Portugal Dec/17 22 Colombia Nov/18 76 Russian Federation Dec/19 23 Cook Islands Sep/18 77 Samoa Oct/15 24 Costa Rica Dec/15 78 Saudi Arabia Sep/18 25 Cuba Dec/15 79 Senegal May/18 26 Cyprus Dec/19 80 Serbia Jun/16 27 Czech Republic Feb/19 81 Seychelles Sep/18 28 Denmark Aug/17 82 Sierra Leone Dec/20 29 Dominican Republic Sep/18 83 Singapore Sep/16 30 Ethiopia Jun/15 84 Slovak Republic Nov/20 31 Fiji Nov/16 85 Slovenia Aug/17 32 Finland Apr/19 86 Solomon Islands Oct/19 33 Georgia Nov/20 87 Spain Dec/14 34 Ghana Apr/18 88 Sri Lanka Oct/15 35 Gibraltar Dec/19 89 St. Lucia Feb/21 36 Greece Sep/19 90 Sweden Apr/17 37 Guatemala Feb/17 91 Switzerland Dec/16 38 Haiti Jul/19 92 Taiwan, China Oct/19 39 Honduras Jan/17 93 Tajikistan Dec/18 40 Hong Kong SAR, China Sep/19 94 Thailand Dec/17 41 Hungary Sep/16 95 Trinidad and Tobago Jun/16 42 Iceland Apr/18 96 Tunisia Jun/16 43 Indonesia Sep/18 97 Turkey Dec/19 44 Ireland Sep/17 98 Turks and Caicos Jan/20 45 Isle of Man Dec/16 99 Uganda Sep/16 46 Israel Dec/18 100 Ukraine Jan/18 47 Italy Feb/16 101 United Arab Emirates Apr/20 48 Jamaica Jan/17 102 United Kingdom Dec/18 49 Jordan Jan/20 103 United States Dec/16 50 Korea, Rep. Apr/20 104 Uruguay Jan/20 51 Kyrgyz Republic Sep/18 105 Vanuatu Oct/15 52 Latvia Jul/18 106 Zambia Jun/19 53 Lithuania Feb/19 107 Zimbabwe Jan/17 54 Macao SAR, China Dec/17 EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 42 B. >>> Appendix B. Study Data Extracted from 107 Mutual Evaluation Reports EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 43 DESCRIPTIONS OF THE DATA CATEGORIES (in columns of the Study Data tables). Column /Data Source 1. FATF/FSRBs Membership. https://www.fatf-gafi.org/countries/ FATF/FSRB Membership (FATF members not included in FSRBs): If a country or jurisdiction is a 2. member of both FATF and an FSRB, it has been considered only as FATF member. Based on the author’s analysis. https://datahelpdesk.worldbank.org/ 3. Income Level (World Bank Group classification) knowledgebase/articles/906519-world-bank- country-and-lending-groups Lending Status (World Bank Group classifications): Shows if the jurisdiction is a WBG client. https://datahelpdesk.worldbank.org/ 4. IDA = eligible for International Development Agency funding, IBRD = eligible for International Bank knowledgebase/articles/906519-world-bank- of Development and Reconstruction lending. Blend = eligible for IDA and IBRD funding. country-and-lending-groups https://www.fatf-gafi.org/publications/ 5. Mutual Evaluation Report Dates. mutualevaluations/documents/assessment- ratings.html 6. MERs that contain a ratio on the level of formal economy/shadow economy. Based on the author’s analysis of MERs. 7. In the MER, the level of informal/shadow economy is regarded as an ML/TF risk or concern. Based on the author’s analysis of MERs. In the previous MER, the level of informal/shadow economy is regarded as an ML/TF risk or 7.a concern. Based on the author’s analysis of MERs. 8 In the MER the use of cash or the level of cash-intensive business is cited as a concern. Based on the author’s analysis of MERs. 9 The MER indicated a connection between informal/cash economy and financial exclusion. Based on the author’s analysis of MERs. 10 The MER cites financial exclusion (separately from informal economy) as a ML/TF risk or concern. Based on the author’s analysis of MERs. The previous MER cites financial exclusion (separately from informal economy) as a ML/TF risk or 10.a concern. Based on the author’s analysis of MERs. The MER contains some ratios on the level of financial inclusion. (e.g., account ownership, bank 11 penetration rate, access to formal financial services/bank account). Based on the author’s analysis of MERs. The previous MER contains some ratios on the level of financial inclusion. (e.g., account 11.a ownership, bank penetration rate, access to formal financial services/bank account). Based on the author’s analysis of MERs. The MER has reference to the jurisdiction’s national policy or strategy for financial inclusion/ 12. financial education. Based on the author’s analysis of MERs. The MER cited financial products/measures that exist in the jurisdiction to promote financial 13. inclusion. Based on the author’s analysis of MERs. 14. The MER contains some recommendations about financial inclusion. Based on the author’s analysis of MERs. 15. The MER contains direct or indirect information on de-risking by banks or other institutions. Based on the author’s analysis of MERs. 16. The jurisdiction has up-to-date and complete NRA. Based on the author’s analysis of MERs. 17. NRA has been used to frame low risk factors for exemption. Based on the author’s analysis of MERs. 18. NRA has lower-risk scenarios for SDD. Based on the author’s analysis of MERs. 19. FIs and DNFBPs are required to make risk assessment to identify, assess, and mitigate risks. Based on the author’s analysis of MERs. 20. The jurisdiction allows some exemptions of FATF Recommendations under law/regulations. Based on the author’s analysis of MERs. Exemptions of some financial/nonfinancial activities from AML/CFT measures are based on risk 21. assessments. Based on the author’s analysis of MERs. 22. The exemptions (from CDD) are based on low-risk cases/transactions. Based on the author’s analysis of MERs. 23. The obliged entities can apply exemptions based on risk assessment. Based on the author’s analysis of MERs. The jurisdiction/legislation/regulations allow simplified measures to be applied in predetermined 24. scenarios. Based on the author’s analysis of MERs. 25. The jurisdiction has a tiered/progressive CDD approach as a means of SDD. Based on the author’s analysis of MERs. 26. The predetermined SDD measures are based on risk assessments or NRA. Based on the author’s analysis of MERs. 27. SDD measures are in fact exemptions according to the assessors. Based on the author’s analysis of MERs. SDD measures are allowed when lower risk has been identified by obliged entities. (Discretionary 28. SDD). Based on the author’s analysis of MERs. Discretionary SDD measures are based on risk assessment/lower risk factors or commensurate 29. with NRA/risk assessment. Based on the author’s analysis of MERs. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 44 Column /Data Source Obliged entities need to get the approval of supervisory authority for SDD based on risk 30. assessments. Based on the author’s analysis of MERs. 31. SDD/exemptions cannot be applied where there is a suspicion of ML/TF. Based on the author’s analysis of MERs. 32. There are some recommendations for the jurisdiction regarding SDD measures. Based on the author’s analysis of MERs. 33. There is differentiation among obliged entities groups related to SDD. Based on the author’s analysis of MERs. There is a requirement to verify the potential/existing customer’s address according to the CDD 34. measures? Based on the author’s analysis of MERs. 35. The jurisdiction has ID number/ID-citizen database/ID infrastructure for citizens. Based on the author’s analysis of MERs. 36. A kind of SDD (predefined SDD and/or discretionary SDD) exists in the country. Based on the author’s analysis of MERs. 37. The jurisdiction allows both predefined SDD and discretionary SDD. Based on the author’s analysis of MERs. 38. The jurisdiction applies only discretionary SDD. Based on the author’s analysis of MERs. Leandro Medina and Friedrich Schneider, “Shadow Economies around the World: What Did We Learn Over the Last 20 Years?,” IMF Working Paper 017, International Monetary 39. Shadow economy ratio, as of 2015 Fund, Washington, DC, 2018. https://www.elibrary.imf.org/view/ journals/001/2018/017/001.2018.issue-017-en. xml. Shadow economy groups: (1) 9% or less, (2) 10%–19%, (3) 20%–29%, (4) 30%–39%, Categorization of data in column 39 by the 40. (5) 40%–49%, (6) 50%–59%, (7) 60% and more. author. Account ownership (% age 15+) as of 2017. This has been used as the main indicator of financial Global Findex 41. inclusion levels in jurisdictions. https://globalfindex.worldbank.org Financial exclusion rate. Percentage of those who are in +15 age group and do not have Transpose of data in 41 by the author: 100% 42. accounts. minus account ownership ratio. Financial exclusion groups: (1) 9% or less, (2) 10%–19%, (3) 20%–29%, (4) 30%–39%, (5) Categorization of data in column 42 by the 43. 40%–49%, (6) 50%–59%, (7) 60% and more. author. https://www.worldbank.org/en/topic/ 44. Fragile and Post Conflict States fragilityconflictviolence/overview#3 45. Legal System (common law, civil law, mixed) Based on the author’s research and analysis. https://data.worldbank.org/indicator/NY.GDP. 46. GDP-2015 (constant USD 2010) MKTP.KD https://data.worldbank.org/indicator/NY.GDP. 47. GDP Per Capita-2015 (constant USD 2010) PCAP.KD EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 45 STUDY DATA 1 2 3 4 5 6 7 7.A 8 Data Description FATF/FSRB FATF/FSRB Income Lending MER MER In the MER, Same in the In the MER Membership Membership Level Status Date contains the level of previous the use (FATF (WBG) (WBG) (based a ratio on informal/ MER. of cash or members not on FATF informal shadow cash- included in ratings economy/ economy intensive FRSBs) list) cash is regarded business is economy. as a ML/TF a concern. risk or as a COUNTRY/JURISDICTION concern. 1 ALBANIA MONEYVAL MONEYVAL UMI IBRD Dec/18 Y Y Y Y 2 ANDORRA MONEYVAL MONEYVAL HI   Sep/17 N N N Y 3 ANTIGUA and BARBUDA CFATF CFATF HI IBRD Jul/18 N N N Y 4 ARMENIA MONEYVAL MONEYVAL UMI IBRD Jan/16 Y Y Y Y 5 AUSTRALIA FATF/APG FATF HI   Apr/15 N N N Y 6 AUSTRIA FATF FATF HI   Sep/16 N N N Y 7 BAHAMAS, THE CFATF CFATF HI   Aug/17 N N N Y 8 BAHRAIN MENAFATF MENAFATF HI   Sep/18 N N   Y 9 BANGLADESH APG APG LMI IDA Nov/16 N Y Y Y 10 BARBADOS CFATF CFATF HI   Feb/18 N N N N 11 BELARUS EAG EAG UMI IBRD Dec/19 N N N Y 12 BELGIUM FATF FATF HI   Apr/15 Y N N Y 13 BERMUDA CFATF CFATF HI   Jan/20 N N N N 14 BHUTAN APG APG LMI IDA Oct/16 Y Y   Y 15 BOSTWANA ESAAMLG  ESAAMLG  UMI IBRD May/17 N Y N Y 16 BURKINA FASO GIABA GIABA LI IDA May/19 Y Y Y Y 17 CABO VERDE GIABA GIABA LMI BLEND May/19 Y Y N Y 18 CAMBODIA APG APG LMI IDA Sep/17 N Y Y Y 19 CANADA FATF/APG FATF HI   Sep/16 N N N N 20 CAYMAN ISLANDS CFATF CFATF HI   Mar/19 N N N N 21 CHINA FATF/APG/EAG FATF UMI IBRD Apr/19 N Y N N 22 COLOMBIA GAFILAT GAFILAT UMI   Nov/18 Y Y N Y 23 COOK ISLANDS APG APG   Sep/18 N N N N 24 COSTA RICA GAFILAT GAFILAT UMI IBRD Dec/15 N Y   Y 25 CUBA GAFILAT GAFILAT UMI   Dec/15 N N   N 26 CYPRUS MONEYVAL MONEYVAL HI   Dec/19 N N N N 27 CZECH REPUBLIC MONEYVAL MONEYVAL HI   Feb/19 N N N Y 28 DENMARK FATF FATF HI   Aug/17 N N N N 29 DOMINICAN REPUBLIC GAFILAT GAFILAT UMI IBRD Sep/18 Y Y   N 30 ETHIOPIA ESAAMLG  ESAAMLG  LI IDA Jun/15 Y Y   Y 31 FIJI APG APG UMI BLEND Nov/16 N N N Y 32 FINLAND FATF FATF HI   Apr/19 Y Y Y N 33 GEORGIA MONEYVAL MONEYVAL UMI IBRD Nov/20 Y Y N Y 34 GHANA GIABA GIABA LMI IDA Apr/18 Y Y   Y 35 GIBRALTAR MONEYVAL MONEYVAL HI   Dec/19 N N   Y 36 GREECE FATF FATF HI   Sep/19 Y Y Y N 37 GUATEMALA GAFILAT GAFILAT UMI IBRD Feb/17 Y Y Y Y 38 HAITI CFATF CFATF LI IDA Jul/19 N Y Y Y 39 HONDURAS GAFILAT GAFILAT LMI IDA Jan/17 N Y N Y 40 HONG KONG SAR, CHINA FATF/APG FATF HI   Sep/19 N N N N 41 HUNGARY MONEYVAL MONEYVAL HI   Sep/16 N Y N Y 42 ICELAND FATF FATF HI   Apr/18 N N N Y 43 INDONESIA APG APG UMI IBRD Sep/18 N N N Y 44 IRELAND FATF FATF HI   Sep/17 N N N N 45 ISLE OF MAN MONEYVAL MONEYVAL HI   Dec/16 N N   N 46 ISRAEL FATF/MONEYVAL FATF HI   Dec/18 N Y N N 47 ITALY FATF FATF HI   Feb/16 N Y N Y 48 JAMAICA CFATF CFATF UMI IBRD Jan/17 N N N Y 49 JORDAN MENAFATF MENAFATF UMI IBRD Jan/20 Y Y N Y 50 KOREA, REP. FATF/APG FATF HI   Apr/20 N N N N 51 KYRGYZ REPUBLIC EAG EAG LMI IDA Sep/18 Y Y Y Y 52 LATVIA MONEYVAL MONEYVAL HI   Jul/18 Y Y Y Y 53 LITHUANIA MONEYVAL MONEYVAL HI   Feb/19 Y Y Y Y 54 MACAO SAR, CHINA APG APG HI   Dec/17 N N N N Data entries: Y (Yes), N (No), NI (No information in the MER Report), Blank (Not applicable or available). EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 46 1 2 3 4 5 6 7 7.A 8 Data Description FATF/FSRB FATF/FSRB Income Lending MER MER In the MER, Same in the In the MER Membership Membership Level Status Date contains the level of previous the use (FATF (WBG) (WBG) (based a ratio on informal/ MER. of cash or members not on FATF informal shadow cash- included in ratings economy/ economy intensive FRSBs) list) cash is regarded business is economy. as a ML/TF a concern. risk or as a COUNTRY/JURISDICTION concern. 55 MADAGASCAR ESAAMLG  ESAAMLG  LI IDA Sep/18 N Y   Y 56 MALAWI ESAAMLG ESAAMLG LI IDA Sep/19 N Y N Y 57 MALAYSIA FATF/APG FATF UMI IBRD Sep/15 N N Y Y 58 MALI GIABA GIABA LI IDA Mar/20 Y Y Y Y 59 MALTA MONEYVAL MONEYVAL HI Jul/19 Y Y N Y 60 MAURITANIA MENAFATF MENAFATF LMI IDA Nov/18 N Y Y Y 61 MAURITIUS ESAAMLG ESAAMLG HI IBRD Jul/18 N N N N 62 MEXICO FATF/GAFILAT FATF UMI IBRD Jan/18 Y Y Y Y 63 MOLDOVA MONEYVAL MONEYVAL LMI IBRD Jul/19 N N N Y 64 MONGOLIA APG APG LI Sep/17 Y Y Y Y 65 MOROCCO MENAFATF MENAFATF LMI IBRD Jun/19 Y Y N Y 66 MYANMAR APG APG LMI IDA Sep/18 Y Y Y Y 67 NICARAGUA GAFILAT GAFILAT LMI IDA Oct/17 Y Y Y 68 NORWAY FATF FATF HI Dec/14 N N N N 69 NEW ZEALAND FATF/APG APG HI Feb/21 N N N N 70 PAKISTAN APG APG LMI BLEND Oct/19 N Y Y Y 71 PALAU APG APG HI IBRD Sep/18 N N N Y 72 PANAMA GAFILAT GAFILAT HI IBRD Jan/18 N N N 73 PERU GAFILAT GAFILAT UMI IBRD Feb/19 Y Y N Y 74 PHILIPPINES APG APG LMI IBRD Oct/19 Y Y N Y 75 PORTUGAL FATF FATF HI Dec/17 Y Y N Y 76 RUSSIAN FEDERATION FATF/MONEYVAL/EAG FATF UMI IBRD Dec/19 Y Y N Y 77 SIERRA LEONE GIABA GIABA LI IDA Dec/20 Y Y N Y 78 ST. LUCIA CFATF CFATF UMI BLEND Feb/21 N N N Y 79 SAMOA APG APG UMI IDA Oct/15 N N Y Y 80 SAUDI ARABIA FATF/MENAFATF FATF HI Sep/18 N N Y Y 81 SENEGAL GIABA GIABA LMI IDA May/18 Y Y Y Y 82 SERBIA MONEYVAL MONEYVAL UMI IBRD Jun/16 Y Y N Y 83 SEYCHELLES ESAAMLG ESAAMLG HI IBRD Sep/18 N N N N 84 SINGAPORE FATF/APG FATF HI Sep/16 Y N N N 85 SLOVAK REPUBLIC MONEYVAL MONEYVAL HI Nov/20 Y Y N Y 86 SLOVENIA MONEYVAL MONEYVAL HI Aug/17 N N N N 87 SOLOMON ISLANDS APG APG LMI IDA Oct/19 Y Y N Y 88 SPAIN FATF FATF HI Dec/14 Y Y N Y 89 SRI LANKA APG APG LMI IBRD Oct/15 Y Y N N 90 SWEDEN FATF FATF HI Apr/17 N N N N 91 SWITZERLAND FATF FATF HI Dec/16 N N N Y 92 TAJIKISTAN EAG EAG LI IDA Dec/18 N N N Y 93 TAIWAN, CHINA APG APG Oct/19 Y Y N Y 94 THAILAND APG APG UMI IBRD Dec/17 Y Y Y Y 95 TRINIDAD AND TOBAGO CFATF CFATF HI IBRD Jun/16 N N N Y 96 TUNISIA MENAFATF MENAFATF LMI IBRD Jun/16 Y Y N Y 97 TURKEY FATF FATF UMI IBRD Dec/19 Y Y Y Y 98 TURKS AND CAICOS CFATF CFATF HI Jan/20 N N N N 99 UGANDA ESAAMLG ESAAMLG LI IDA Sep/16 N N N Y 100 UKRAINE MONEYVAL MONEYVAL LMI IBRD Jan/18 Y Y Y Y 101 UNITED ARAB EMIRATES MENAFATF MENAFATF HI Apr/20 N N N Y 102 UNITED KINGDOM FATF FATF HI Dec/18 N N N N 103 UNITED STATES FATF/APG FATF HI Dec/16 N N N N 104 URUGUAY GAFILAT GAFILAT HI IBRD Jan/20 Y Y N N 105 VANUATU APG APG LMI IDA Oct/15 N N N Y 106 ZAMBIA ESAAMLG ESAAMLG LMI IDA Jun/19 N N N Y 107 ZIMBABWE ESAAMLG ESAAMLG LMI BLEND Jan/17 N Y N Y Data entries: Y (Yes), N (No), NI (No information in the MER Report), Blank (Not applicable or available). EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 47 9 10 10.A 11 11.A 12 13 14 15 Data Description MER MER cites Same in the MER Same in the MER has MER cited MER con- MER indicated a financial previous contains previous reference financial tains some contains connection exclusion MER some ratios MER to the products/ recom- direct or between (distinct on financial jurisdiction’s measures menda- indirect informal/ from inclusion national aiming tions about information cash informal (i.e., bank policy or at the financial on de- economy economy) penetration, strategy for promotion inclusion. risking and financial as a ML/ access financial of financial by banks exclusion. TF risk or to formal inclusion/ inclusion. or other concern. financial financial institutions. services/ education. bank COUNTRY/JURISDICTION account). 1 ALBANIA Y Y N N N Y Y Y Y 2 ANDORRA N N N N N NI NI N NI 3 ANTIGUA and BARBUDA N N N N N NI NI N Y 4 ARMENIA Y Y N N N Y Y N Y 5 AUSTRALIA N N N N N NI NI N N 6 AUSTRIA N N N N N NI NI N N 7 BAHAMAS, THE N N N N Y NI NI N N 8 BAHRAIN N N Y NI NI N N 9 BANGLADESH N N N Y N Y Y N N 10 BARBADOS N N N N N NI NI N N 11 BELARUS N N N Y N NI NI N N 12 BELGIUM N N N N N NI NI N Y 13 BERMUDA N N N N N NI NI N Y 14 BHUTAN N Y Y Y Y N N 15 BOSTWANA N Y N Y N NI NI N N 16 BURKINA FASO N Y N Y N Y Y Y N 17 CABO VERDE N N N N N N Y N N 18 CAMBODIA N N N N N Y Y N N 19 CANADA N N N Y Y N N N N 20 CAYMAN ISLANDS N N N N N N N N N 21 CHINA N N N N N NI Y N N 22 COLOMBIA N N N Y N Y NI N Y 23 COOK ISLANDS N N N Y N N N N Y 24 COSTA RICA N Y Y N Y y N 25 CUBA N Y N N N N N 26 CYPRUS N N N N N NI NI N Y 27 CZECH REPUBLIC N N N Y N N N N Y 28 DENMARK N N N Y N N N N N 29 DOMINICAN REPUBLIC Y Y Y N N N N 30 ETHIOPIA Y Y Y Y Y Y N 31 FIJI N Y N Y N Y Y N N 32 FINLAND N N N Y N N N N Y 33 GEORGIA Y Y N Y N Y NI N N 34 GHANA N Y Y Y Y Y N 35 GIBRALTAR N N N N N N N 36 GREECE N N N N N N N N N 37 GUATEMALA Y Y N Y N Y Y N N 38 HAITI Y Y N Y N Y Y Y Y 39 HONDURAS N Y N Y N N Y N N 40 HONG KONG SAR, CHINA N N N N N N N N N 41 HUNGARY N Y N Y N Y Y N N 42 ICELAND N N N N N N N N N 43 INDONESIA N N N Y N Y Y N Y 44 IRELAND N N N N N N N N N 45 ISLE OF MAN N N N N N N N 46 ISRAEL N N N N N N N N Y 47 ITALY N N N N N N N N N 48 JAMAICA Y Y N Y N Y Y N N 49 JORDAN N Y N Y N Y Y N N 50 KOREA, REP. N N N Y N N N N N 51 KYRGYZ REPUBLIC N Y N Y N NI Y N N 52 LATVIA Y N N Y N Y Y N Y 53 LITHUANIA N N N N N N N N Y 54 MACAO SAR, CHINA N N N N N N N N N Data entries: Y (Yes), N (No), NI (No information in the MER Report), Blank (Not applicable or available). EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 48 9 10 10.A 11 11.A 12 13 14 15 Data Description MER MER cites Same in the MER Same in the MER has MER cited MER con- MER con- indicated a financial ex- previous contains previous reference to financial tains some tains direct connection clusion (dis- MER some ratios MER the jurisdic- products/ recom- or indirect between in- tinct from on financial tion’s na- measures menda- informa- formal/cash informal inclusion tional policy aiming tions about tion on economy economy) (i.e., bank or strategy at the financial de-risking and financial as a ML/ penetra- for financial promotion inclusion. by banks or exclusion. TF risk or tion, access inclusion/ of financial other institu- concern. to formal financial inclusion. tions. financial ser- education. vices/ bank account). COUNTRY/JURISDICTION 55 MADAGASCAR Y Y Y N Y Y N 56 MALAWI Y Y N N Y Y Y Y N 57 MALAYSIA N N N Y N Y Y N Y 58 MALI N Y Y Y N Y Y Y N 59 MALTA N Y N N Y N N N N 60 MAURITANIA Y Y Y Y N N N Y N 61 MAURITIUS N N N Y N N N N N 62 MEXICO Y Y N Y Y Y Y N Y 63 MOLDOVA Y Y N N N Y N N N 64 MONGOLIA N Y N Y N N N N N 65 MOROCCO Y Y N Y N Y NI N N 66 MYANMAR Y Y N Y Y NI NI N Y 67 NICARAGUA Y Y Y N N N N 68 NORWAY N N N N N N NI N N 69 NEW ZEALAND N N N N N NI NI N Y 70 PAKISTAN N N N N Y Y Y N N 71 PALAU N N N N N N N Y N 72 PANAMA N N N N N N N 73 PERU N Y N N N Y Y N N 74 PHILIPPINES N Y N Y Y Y Y Y Y 75 PORTUGAL N N N N N N N N N 76 RUSSIAN FEDERATION N N N N N N N N N 77 SIERRA LEONE Y Y N Y N Y Y Y Y 78 ST. LUCIA N N N N N N N N N 79 SAMOA N N Y Y N Y N N Y 80 SAUDI ARABIA N N N N N N N N N 81 SENEGAL N N Y N N Y Y N N 82 SERBIA N N N N N Y Y N N 83 SEYCHELLES N N N Y N N N N Y 84 SINGAPORE N N N N N N N N N 85 SLOVAK REPUBLIC N N N Y N N N N N 86 SLOVENIA N N N Y N N N N N 87 SOLOMON ISLANDS N N N N N N N N N 88 SPAIN N N N N N N N N Y 89 SRI LANKA N Y N Y N Y Y Y Y 90 SWEDEN N N N Y N N N N N 91 SWITZERLAND N N N N N N N N N 92 TAJIKISTAN N N N N N N N N N 93 TAIWAN, CHINA N N N Y N Y Y N Y 94 THAILAND N Y N Y N N N N N 95 TRINIDAD AND TOBAGO Y Y N Y N Y NI N N 96 TUNISIA N Y N Y N N N Y N 97 TURKEY N N N N N N N N Y 98 TURKS AND CAICOS N N N N N N N N Y 99 UGANDA Y Y Y Y Y N Y Y N 100 UKRAINE Y Y N Y Y Y Y Y N 101 UNITED ARAB EMIRATES N N N N N N N N Y 102 UNITED KINGDOM N N N Y N N N N N 103 UNITED STATES N N N Y N N N N N 104 URUGUAY Y Y N Y N Y Y N N 105 VANUATU N N N N N Y Y N N 106 ZAMBIA N N N Y N Y Y N N 107 ZIMBABWE N Y N Y N Y Y N N Data entries: Y (Yes), N (No), NI (No information in the MER Report), Blank (Not applicable or available). EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 49 16 17 18 19 20 21 22 23 24 Data Description The jurisdic- NRA has NRA has FIs and The Exemptions The exemp- The obliged The jurisdic- tion has up- been used lower risk DNFBP are jurisdiction of some tions are entities tion /legisla- to-date and to frame low scenarios required to allows some financial/ based on can apply tion/regula- complete risk factors for SDD. make risk exemptions nonfinancial low-risk exemptions tions allow NRA. for exemp- assessment of FATF activities are cases/trans- based on simplified tion. to identify, Recom- based on actions risk assess- measures to assess, and mendations risk assess- ment. be applied mitigate under law/ ments. in prede- risks. regulations termined scenarios COUNTRY/JURISDICTION 1 ALBANIA Y N N Y N N 2 ANDORRA Y N N N N Y 3 ANTIGUA and BARBUDA Y N Y Y N NI Y 4 ARMENIA Y N N Y N Y 5 AUSTRALIA Y N NI Y Y N N NI Y 6 AUSTRIA Y NI N Y N Y 7 BAHAMAS, THE N N N Y 8 BAHRAIN N Y N Y 9 BANGLADESH Y Y Y Y Y Y NI Y 10 BARBADOS Y N N Y N Y 11 BELARUS N Y N N 12 BELGIUM Y NI NI Y Y N N Y 13 BERMUDA Y NI NI Y Y Y NI N 14 BHUTAN Y NI NI Y Y N NI N 15 BOSTWANA N N Y N N N 16 BURKINA FASO Y N N Y N N 17 CABO VERDE N NI NI Y N Y 18 CAMBODIA Y NI NI Y N Y 19 CANADA Y Y N Y Y N Y NI N 20 CAYMAN ISLANDS N NI NI Y Y NI N NI Y 21 CHINA Y n NI Y N N 22 COLOMBIA Y NI N Y N N Y 23 COOK ISLANDS Y NI NI y y NI y NI Y 24 COSTA RICA Y NI NI Y Y NI N NI N 25 CUBA Y N Y N N 26 CYPRUS Y Y NI Y Y N NI Y 27 CZECH REPUBLIC Y Y Y Y Y Y NI Y 28 DENMARK Y N N Y Y N Y NI N 29 DOMINICAN REPUBLIC Y NI NI Y N N 30 ETHIOPIA N Y N N 31 FIJI Y N N Y N Y 32 FINLAND Y N N Y Y Y NI Y 33 GEORGIA Y N N Y N N N 34 GHANA Y N N Y N N 35 GIBRALTAR Y N N Y Y N NI N 36 GREECE Y N N Y Y Y NI N 37 GUATEMALA N N NI Y N Y 38 HAITI N N N N N 39 HONDURAS Y N N Y N N Y 40 HONG KONG SAR, CHINA Y NI NI Y Y NI N NI Y 41 HUNGARY Y N N N Y N NI Y 42 ICELAND Y N N N Y N NI Y 43 INDONESIA Y NI NI Y N NI Y 44 IRELAND Y N N N Y N N Y 45 ISLE OF MAN Y N N Y Y Y NI N 46 ISRAEL Y NI NI Y Y N N NI Y 47 ITALY Y NI NI Y Y N NI Y 48 JAMAICA N Y Y N NI N 49 JORDAN N NI NI N N N 50 KOREA, REP. Y N Y Y Y N N NI Y 51 KYRGYZ REPUBLIC Y N NI N N N Y 52 LATVIA Y N N Y N Y 53 LITHUANIA N NI NI Y N Y 54 MACAO SAR, CHINA Y NI NI Y N Y Data entries: Y (Yes), N (No), NI (No information in the MER Report), Blank (Not applicable or available). EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 50 16 17 18 19 20 21 22 23 24 Data Description The jurisdic- NRA has NRA has FIs and The Exemptions The exemp- The obliged The jurisdic- tion has up- been used lower risk DNFBP are jurisdiction of some tions are entities tion /legisla- to-date and to frame low scenarios required to allows some financial/ based on can apply tion/regula- complete risk factors for SDD. make risk exemptions nonfinancial low-risk exemptions tions allow NRA. for exemp- assessment of FATF activities are cases/trans- based on simplified tion. to identify, Recom- based on actions risk assess- measures to assess, and mendations risk assess- ment. be applied mitigate under law/ ments. in prede- risks. regulations termined scenarios COUNTRY/JURISDICTION 55 MADAGASCAR N N N N 56 MALAWI Y NI NI Y N N 57 MALAYSIA Y NI NI Y Y Y Y NI Y 58 MALI N Y Y Y NI N 59 MALTA Y N N Y Y N Y NI Y 60 MAURITANIA N N N N 61 MAURITIUS N N Y N NI Y 62 MEXICO Y NI NI Y N Y 63 MOLDOVA Y NI NI Y Y Y NI N 64 MONGOLIA Y N N Y N N N 65 MOROCCO N NI NI N N Y 66 MYANMAR N Y N N 67 NICARAGUA Y N NI Y N N 68 NORWAY Y NI NI Y N Y 69 NEW ZEALAND Y N Y Y N N Y 70 PAKISTAN Y N N Y N N 71 PALAU Y N NI N N Y N 72 PANAMA Y NI NI Y N N 73 PERU Y NI NI Y N Y 74 PHILIPPINES Y Y Y Y Y Y Y N 75 PORTUGAL Y N N Y N Y Y 76 RUSSIAN FEDERATION Y NI NI Y N Y 77 SIERRA LEONE Y N N Y N N 78 ST. LUCIA Y N N Y Y N NI Y 79 SAMOA Y Y NI Y Y Y NI Y 80 SAUDI ARABIA Y N N Y N N 81 SENEGAL Y N N N N N 82 SERBIA Y N NI NI Y N NI Y 83 SEYCHELLES Y N N N N Y 84 SINGAPORE Y N Y Y Y N NI Y 85 SLOVAK REPUBLIC Y N N Y Y N N Y 86 SLOVENIA Y N N Y N N N 87 SOLOMON ISLANDS Y N N N N N 88 SPAIN Y NI NI Y Y Y Y NI Y 89 SRI LANKA Y N N N Y N NI N 90 SWEDEN Y N N Y Y N N NI N 91 SWITZERLAND Y NI NI Y Y N NI N 92 TAJIKISTAN Y NI N N N Y 93 TAIWAN, CHINA Y N NI Y Y N NI Y 94 THAILAND Y N Y Y Y N N NI Y 95 TRINIDAD AND TOBAGO N N N Y N N 96 TUNISIA N N N Y 97 TURKEY Y NI N Y N N Y 98 TURKS AND CAICOS Y N N Y Y N NI N 99 UGANDA N N N N 100 UKRAINE Y N N Y Y N NI Y 101 UNITED ARAB EMIRATES Y N Y Y N N 102 UNITED KINGDOM Y Y NI Y Y Y NI N 103 UNITED STATES Y N NI Y Y N N NI N 104 URUGUAY Y N NI Y N N 105 VANUATU N N N N 106 ZAMBIA Y NI NI Y N N 107 ZIMBABWE Y NI Y N Y N NI N Data entries: Y (Yes), N (No), NI (No information in the MER Report), Blank (Not applicable or available). EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 51 25 26 27 28 29 30 31 32 33 Data Description The jurisdic- The SDD SDD SDD mea- SDD applied Obliged SDD/ex- There are There is tion has a set out by measures sures are al- by obliged entities need emptions some rec- distinction tiered CDD the jurisdic- are in fact lowed when entities is to get the cannot be ommenda- among sec- approach. tion are exemptions lower risk really based approval of applied tions for the tors related based on according to has been on risk as- supervisory where jurisdiction to SDD. risk assess- the asses- identified sessment/ authority for there is a regarding ments or sors. by obliged lower risk SDD based suspicion of simplified NRA. entities. factors and on risk as- ML/TF. measures. commen- sessments. surate with COUNTRY/JURISDICTION NRA/risk as- sessment. 1 ALBANIA N N N 2 ANDORRA N N Y Y NI NI Y N N 3 ANTIGUA and BARBUDA N NI N Y NI NI Y N N 4 ARMENIA N N N N Y N N 5 AUSTRALIA N N Y N Y N N 6 AUSTRIA N N N N Y N Y 7 BAHAMAS, THE N N NI N Y N N 8 BAHRAIN N N N N Y N Y 9 BANGLADESH N Y N Y NI Y Y N N 10 BARBADOS N N N N Y N Y 11 BELARUS N N Y N 12 BELGIUM N N N N Y N N 13 BERMUDA N Y NI N Y N N 14 BHUTAN N Y NI Y Y N N 15 BOSTWANA N N NI N N 16 BURKINA FASO N Y N NI Y Y N 17 CABO VERDE N N N Y NI NI Y N N 18 CAMBODIA N N N N Y N 19 CANADA M N N N 20 CAYMAN ISLANDS N N Y Y Y NI Y Y N 21 CHINA Y Y N Y NI Y Y N N 22 COLOMBIA N Y N N NI Y N Y 23 COOK ISLANDS N Y N Y NI NI Y N N 24 COSTA RICA N Y N Y NI Y Y 25 CUBA N Y NI Y Y Y N 26 CYPRUS N Y N Y NI NI N Y N 27 CZECH REPUBLIC N N N Y NI NI Y Y N 28 DENMARK N Y Y NI Y Y Y N 29 DOMINICAN REPUBLIC N Y NI NI Y N Y 30 ETHIOPIA N Y NI NI Y N N 31 FIJI N NI N Y NI NI Y N N 32 FINLAND N NI N Y NI NI Y Y N 33 GEORGIA N Y NI Y Y N N 34 GHANA N N Y N NI Y Y N 35 GIBRALTAR N N Y N N N Y N 36 GREECE N N Y Y NI Y Y N 37 GUATEMALA N NI N Y NI Y N N N 38 HAITI N N N 39 HONDURAS N Y Y NI NI Y N N 40 HONG KONG SAR, CHINA N N N Y NI NI Y N N 41 HUNGARY N N Y N Y N N 42 ICELAND N N N Y NI Y Y N N 43 INDONESIA N Y N Y NI NI Y N N 44 IRELAND N N N N Y N N 45 ISLE OF MAN N Y NI Y Y N N 46 ISRAEL N N Y N Y N Y 47 ITALY N NI N N Y N N 48 JAMAICA N N N N N 49 JORDAN N N Y Y 50 KOREA, REP. N Y N Y NI NI Y N Y 51 KYRGYZ REPUBLIC N N N N N N N 52 LATVIA N N N N Y N N 53 LITHUANIA N N N Y NI NI Y N N 54 MACAO SAR, CHINA N Y N N Y N N Data entries: Y (Yes), N (No), NI (No information in the MER Report), Blank (Not applicable or available). EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 52 25 26 27 28 29 30 31 32 33 Data Description The jurisdic- The SDD SDD SDD mea- SDD applied Obliged SDD/ex- There are There is tion has a set out by measures sures are al- by obliged entities need emptions some rec- distinction tiered CDD the jurisdic- are in fact lowed when entities is to get the cannot be ommenda- among sec- approach. tion are exemptions lower risk really based approval of applied tions for the tors related based on according to has been on risk as- supervisory where jurisdiction to SDD. risk assess- the asses- identified sessment/ authority for there is a regarding ments or sors. by obliged lower risk SDD based suspicion of simplified NRA. entities. factors and on risk as- ML/TF. measures. commen- sessments. surate with COUNTRY/JURISDICTION NRA/risk as- sessment. 55 MADAGASCAR N N N 56 MALAWI N Y NI NI N N N 57 MALAYSIA N Y N N Y N N 58 MALI N Y Y Y Y Y N 59 MALTA N NI N Y N NI Y Y N 60 MAURITANIA N N Y 61 MAURITIUS N N N N Y Y N 62 MEXICO Y Y N Y NI NI N N Y 63 MOLDOVA N Y N NI Y N N 64 MONGOLIA N N Y 65 MOROCCO N N N N Y N N 66 MYANMAR N Y N NI Y N N 67 NICARAGUA N Y Y NI NI N N 68 NORWAY N N Y N Y N N 69 NEW ZEALAND N Y N N N N N 70 PAKISTAN Y Y Y N NI Y N Y 71 PALAU N Y N NI N Y N 72 PANAMA N Y NI Y N N N 73 PERU N Y N Y NI Y Y N Y 74 PHILIPPINES N Y NI Y Y N N 75 PORTUGAL N N N Y NI NI Y N N 76 RUSSIAN FEDERATION N Y N N Y N N 77 SIERRA LEONE N Y NI N N Y N 78 ST. LUCIA N N N Y N NI N N N 79 SAMOA N N N Y N NI Y N N 80 SAUDI ARABIA N Y NI NI Y N Y 81 SENEGAL N N Y N 82 SERBIA N N N Y N NI Y Y N 83 SEYCHELLES N N N N Y N N 84 SINGAPORE N Y Y NI NI Y N N 85 SLOVAK REPUBLIC N N N N Y Y N 86 SLOVENIA N Y NI NI Y Y N 87 SOLOMON ISLANDS N N Y 88 SPAIN N Y N N Y N N 89 SRI LANKA N N Y N 90 SWEDEN N Y N Y N N 91 SWITZERLAND N N N Y 92 TAJIKISTAN N N N N N N N 93 TAIWAN, CHINA N N N N Y Y Y 94 THAILAND N N N Y N NI NI N N 95 TRINIDAD AND TOBAGO N N Y N NI Y N N 96 TUNISIA N N N N Y N N 97 TURKEY N N N N Y N N 98 TURKS AND CAICOS N Y N Y N N 99 UGANDA N N Y N NI Y N N 100 UKRAINE N Y N N Y N Y 101 UNITED ARAB EMIRATES N Y Y NI Y N N 102 UNITED KINGDOM N Y Y NI Y N N 103 UNITED STATES N N N 104 URUGUAY N Y NI NI Y N Y 105 VANUATU N Y NI Y NI N N 106 ZAMBIA N Y Y NI N N N 107 ZIMBABWE N N N N Data entries: Y (Yes), N (No), NI (No information in the MER Report), Blank (Not applicable or available). EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 53 34 35 36 37 38 39 40 41 42 Data Description There is a The jurisdic- A kind of Jurisdic- Only discre- Shadow Shadow Account (% Financial requirement tion has ID SDD (pre- tions that tionary SDD economy, as economy age 15+) exclusion to verify the number/ determined allow both is allowed. of 2015 groups: 2017 rate (rate of potential/ ID-citizen SDD and/or predefined (1) 9% or those who existing database/ID discretionary SDD and less, (2) don't have customer’s infrastruc- SDD) discretionary 10%–19%, accounts) address ture for SDD (3) 20%– according citizens. 29%, (4) to the CDD 30%–39%, measures. (5) 40%– COUNTRY/JURISDICTION 49%, (6) 50%–59%, (7) 60% and more. 1 ALBANIA N Y N N N 26.21% 3 40% 60% 2 ANDORRA NI Y Y Y N NI 3 ANTIGUA and BARBUDA Y NI Y Y N NI 4 ARMENIA NI Y Y N N 35.96% 4 48% 52% 5 AUSTRALIA Y NI Y N N 8.10% 1 100% 0% 6 AUSTRIA N NI Y N N 9.01% 1 98% 2% 7 BAHAMAS, THE NI NI Y N N 38.55% 4 8 BAHRAIN Y Y Y N N 16.63% 2 83% 17% 9 BANGLADESH Y Y Y Y N 27.60% 3 50% 50% 10 BARBADOS Y NI Y N N 11 BELARUS NI Y N N N 32.37% 4 81% 19% 12 BELGIUM NI NI Y N N 17.80% 2 99% 1% 13 BERMUDA NI NI Y N Y 14 BHUTAN Y Y Y N Y 20.28% 3 34% 66% 15 BOSTWANA Y Y N N N 23.99% 3 51% 49% 16 BURKINA FASO NI Y Y N Y 29.63% 4 43% 57% 17 CABO VERDE NI NI Y Y N 30.23% 4 18 CAMBODIA Y Y Y N N 33.85% 4 22% 78% 19 CANADA N NI N N N 9.42% 1 100% 0% 20 CAYMAN ISLANDS NI NI Y Y N 21 CHINA N Y Y N Y 12.11% 2 80% 20% 22 COLOMBIA Y Y Y N N 25.25% 3 46% 54% 23 COOK ISLANDS N Y Y Y N 24 COSTA RICA Y Y Y N Y 19.24% 2 68% 32% 25 CUBA N Y Y N Y 26 CYPRUS N Y Y Y N 32.20% 4 89% 11% 27 CZECH REPUBLIC NI Y Y Y N 10.47% 2 81% 19% 28 DENMARK Y Y Y N Y 14.70% 2 100% 0% 29 DOMINICAN REPUBLIC N Y Y N Y 27.97% 3 56% 44% 30 ETHIOPIA NI N Y N Y 25.10% 3 35% 65% 31 FIJI N NI Y Y N 25.37% 3 32 FINLAND Y Y Y Y N 13.30% 2 100% 0% 33 GEORGIA N NI Y N Y 53.07% 6 61% 39% 34 GHANA NI N Y N Y 39.37% 4 58% 42% 35 GIBRALTAR Y Y Y N Y 36 GREECE NI Y Y N Y 26.45% 3 85% 15% 37 GUATEMALA Y Y Y Y N 16.88% 2 44% 56% 38 HAITI Y N N N N 56.38% 6 33% 67% 39 HONDURAS Y Y Y Y N 37.68% 4 45% 55% 40 HONG KONG SAR, CHINA NI NI Y Y N 12.39% 2 95% 5% 41 HUNGARY NI NI Y N N 20.49% 75% 25% 42 ICELAND N Y Y Y N 12.45% 2 43 INDONESIA Y Y Y Y N 21.76% 3 49% 51% 44 IRELAND NI NI Y N N 9.58% 2 95% 5% 45 ISLE OF MAN N NI Y N Y 46 ISRAEL N NI Y N N 19.18% 2 93% 7% 47 ITALY N NI Y N N 22.97% 3 94% 6% 48 JAMAICA Y N N N N 24.97% 3 78% 22% 49 JORDAN N Y N N N 15.16% 1 42% 58% 50 KOREA, REP. Y Y Y Y N 19.83% 3 95% 5% 51 KYRGYZ REPUBLIC NI NI Y N N 30.78% 4 40% 60% 52 LATVIA N NI Y N N 16.62% 2 93% 7% 53 LITHUANIA N NI Y Y N 18.65% 2 83% 17% 54 MACAO SAR, CHINA Y NI Y N N Data entries: Y (Yes), N (No), NI (No information in the MER Report), Blank (Not applicable or available). EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 54 34 35 36 37 38 39 40 41 42 Data Description There is a The jurisdic- A kind of Jurisdic- Only discre- Shadow Shadow Account (% Financial requirement tion has ID SDD (pre- tions that tionary SDD economy, as economy age 15+) exclusion to verify the number/ determined allow both is allowed. of 2015 groups: 2017 rate (rate of potential/ ID-citizen SDD and/or predefined (1) 9% or those who existing database/ID discretionary SDD and less, (2) don't have customer’s infrastruc- SDD) discretionary 10%–19%, accounts) address ture for SDD (3) 20%– according citizens. 29%, (4) to the CDD 30%–39%, measures. (5) 40%– 49%, (6) 50%–59%, COUNTRY/JURISDICTION (7) 60% and more. 55 MADAGASCAR Y Y N N N 45.29% 5 18% 82% 56 MALAWI Y N Y N Y 33.56% 4 34% 66% 57 MALAYSIA Y Y Y N N 26.07% 3 85% 15% 58 MALI N N Y N Y 29.45% 3 35% 65% 59 MALTA N NI Y Y N 29.43% 3 97% 3% 60 MAURITANIA Y NI N N N 25.75% 3 21% 79% 61 MAURITIUS Y Y Y N N 19.23% 2 90% 10% 62 MEXICO Y Y Y Y N 28.07% 3 37% 63% 63 MOLDOVA N NI Y N Y 39.68% 5 44% 56% 64 MONGOLIA N Y N N N 13.20% 2 93% 7% 65 MOROCCO NI NI Y N N 27.13% 3 29% 71% 66 MYANMAR N Y Y N Y 50.99% 6 26% 74% 67 NICARAGUA NI NI Y N Y 39.51% 5 31% 69% 68 NORWAY N Y Y N N 15.07% 2 100% 0% 69 NEW ZEALAND NI Y Y N N 8.97% 1 99% 1% 70 PAKISTAN Y Y Y N Y 31.62% 4 21% 79% 71 PALAU N N Y N Y 72 PANAMA Y Y Y N Y 46% 54% 73 PERU NI Y Y Y N 41.53% 5 43% 57% 74 PHILIPPINES NI Y Y N Y 28.04% 3 34% 66% 75 PORTUGAL N NI Y Y N 17.87% 2 92% 8% 76 RUSSIAN FEDERATION Y NI Y N N 33.72% 4 76% 24% 77 SIERRA LEONE Y Y Y N Y 34.18% 4 20% 80% 78 ST. LUCIA Y Y Y Y N 79 SAMOA NI NI Y Y N 80 SAUDI ARABIA Y Y Y N Y 14.70% 2 72% 28% 81 SENEGAL Y Y N N N 33.68% 4 42% 58% 82 SERBIA N NI Y Y N 71% 29% 83 SEYCHELLES Y Y Y N N 84 SINGAPORE N Y Y Y N 9.20% 1 98% 2% 85 SLOVAK REPUBLIC NI NI Y N N 11.18% 2 84% 16% 86 SLOVENIA NI Y Y N Y 20.21% 3 98% 2% 87 SOLOMON ISLANDS Y NI N N N 30.89% 4 88 SPAIN NI NI Y N N 22.01% 3 94% 6% 89 SRI LANKA Y NI N N N 35.49% 4 74% 26% 90 SWEDEN NI Y N N N 11.74% 2 100% 0% 91 SWITZERLAND N NI N N N 6.94% 1 98% 2% 92 TAJIKISTAN NI NI Y N N 37.73% 4 47% 53% 93 TAIWAN, CHINA N NI Y N N 94 THAILAND Y NI Y Y N 43.12% 5 82% 18% 95 TRINIDAD AND TOBAGO NI NI Y N Y 31.40% 4 81% 19% 96 TUNISIA Y Y Y N N 30.90% 4 37% 63% 97 TURKEY Y Y Y N N 27.43% 3 69% 31% 98 TURKS AND CAICOS NI Y N N N 99 UGANDA N N Y N Y 31.88% 4 59% 41% 100 UKRAINE N Y Y N N 42.90% 5 63% 37% 101 UNITED ARAB EMIRATES NI Y Y N Y 24.26% 3 88% 12% 102 UNITED KINGDOM N NI Y N Y 8.32% 1 96% 4% 103 UNITED STATES Y Y N N N 7.00% 1 93% 7% 104 URUGUAY N Y Y N Y 20.38% 3 64% 36% 105 VANUATU NI NI Y N Y 106 ZAMBIA Y N Y N Y 32.99% 4 46% 54% 107 ZIMBABWE Y NI N N N 67.00% 7 55% 45% Data entries: Y (Yes), N (No), NI (No information in the MER Report), Blank (Not applicable or available). EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 55 43 44 45 46 47 Data Description Financial exclusion Fragile and Post Con- Legal System GDP-2015 (Constant GDP Per Capita-2015 groups: flict States USD 2010) (Constant USD 2010) (1) 9% or less, (2) 10%–19%, (3) 20%– 29%, (4) 30%–39%, (5) 40%–49%, (6) 50%–59%, (7) 60% and more. COUNTRY/JURISDICTION 1 ALBANIA 7 N CivL 13,033,375,122 4,524 2 ANDORRA N ComL 3,287,458,571 42,141 3 ANTIGUA and BARBUDA N ComL 1,247,061,369 13,328 4 ARMENIA 6 N CivL 11,479,040,584 3,924 5 AUSTRALIA 1 N ComL 1,311,782,435,234 55,080 6 AUSTRIA 1 N CivL 413,029,270,084 47,789 7 BAHAMAS, THE N ComL 10,298,092,269 27,520 8 BAHRAIN 2 N ML 30,778,484,043 22,436 9 BANGLADESH 6 N ML 156,629,530,357 1,002 10 BARBADOS N ComL 4,518,500,000 15,836 11 BELARUS 2 N CivL 60,589,462,936 6,385 12 BELGIUM 1 N CivL 513,013,709,008 45,503 13 BERMUDA N ComL 14 BHUTAN 7 N ML 2,024,091,803 2,781 15 BOSTWANA 5 N ML 16,146,492,037 7,614 16 BURKINA FASO 6 Y ML 13,160,121,367 727 17 CABO VERDE N 1,791,765,400 3,415 18 CAMBODIA 7 N CivL 15,903,594,934 1,025 19 CANADA 1 N ComL 1,794,500,549,645 50,262 20 CAYMAN ISLANDS N ComL 4,551,569,361 73,741 21 CHINA 3 N ML 8,913,316,598,061 6,500 22 COLOMBIA 6 N CivL 360,219,751,074 7,580 23 COOK ISLANDS N ComL 24 COSTA RICA 4 N CivL 44,693,794,269 9,219 25 CUBA N CivL 73,868,565,770 6,523 26 CYPRUS 2 N ML 23,648,094,815 27,898 27 CZECH REPUBLIC 2 N CivL 225,492,702,209 21,382 28 DENMARK 1 N CivL 343,294,474,743 60,402 29 DOMINICAN REPUBLIC 5 N CivL 68,495,164,568 6,662 30 ETHIOPIA 7 N ML 48,667,131,303 483 31 FIJI N ComL 3,786,536,322 4,359 32 FINLAND 1 N CivL 250,126,829,516 45,647 33 GEORGIA 4 N CivL 15,593,311,954 4,186 34 GHANA 5 N ML 45,280,184,655 1,626 35 GIBRALTAR N ComL 36 GREECE 2 N CivL 244,718,538,732 22,615 37 GUATEMALA 6 N CivL 49,984,953,618 3,211 38 HAITI 7 Y CivL 7,798,330,009 729 39 HONDURAS 6 N CivL 18,839,040,425 2,067 40 HONG KONG SAR, CHINA 1 N ML 264,386,769,836 36,261 41 HUNGARY 3 N CivL 145,140,270,520 14,745 42 ICELAND N CivL 15,724,860,718 47,534 43 INDONESIA 6 N ML 988,128,596,686 3,824 44 IRELAND 1 N ComL 307,661,905,046 65,433 45 ISLE OF MAN N ComL 6,776,319,279 81,413 46 ISRAEL 1 N ML 277,141,740,754 33,071 47 ITALY 1 N CivL 2,062,497,785,388 33,961 48 JAMAICA 3 N ComL 13,651,535,656 4,722 49 JORDAN 6 N ML 30,629,948,424 3,305 50 KOREA, REP. 1 N ML 1,329,638,605,060 26,064 51 KYRGYZ REPUBLIC 7 N CivL 6,082,952,718 1,021 52 LATVIA 1 N CivL 28,371,477,922 14,347 53 LITHUANIA 2 N CivL 44,591,709,054 15,350 54 MACAO SAR, CHINA N CivL 32,198,777,329 53,479 Data entries: Y (Yes), N (No), NI (No information in the MER Report), Blank (Not applicable or available). EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 56 43 44 45 46 47 Data Description Financial exclusion Fragile and Post Con- Legal System GDP-2015 (Constant GDP Per Capita-2015 groups: flict States USD 2010) (Constant USD 2010) (1) 9% or less, (2) 10%–19%, (3) 20%– 29%, (4) 30%–39%, (5) 40%–49%, (6) 50%–59%, (7) 60% and more. COUNTRY/JURISDICTION 55 MADAGASCAR 7 N ML 11,388,624,679 470 56 MALAWI 7 N ML 8,499,051,829 508 57 MALAYSIA 2 N ML 330,321,318,799 10,912 58 MALI 7 Y ML 12,726,485,666 730 59 MALTA 1 N ML 11,525,964,504 25,898 60 MAURITANIA 7 N ML 7,010,569,791 1,733 61 MAURITIUS 2 N ML 11,965,285,104 9,477 62 MEXICO 7 N CivL 1,223,115,888,816 10,037 63 MOLDOVA 6 N CivL 8,372,415,479 2,954 64 MONGOLIA 1 N ML 11,680,159,346 3,895 65 MOROCCO 7 N ML 113,383,503,345 3,222 66 MYANMAR 7 Y ML 70,339,509,334 1,335 67 NICARAGUA 7 N CivL 11,425,955,819 1,836 68 NORWAY 1 N CivL 467,126,944,888 90,029 69 NEW ZEALAND 1 N ComL 169,087,041,816 36,792 70 PAKISTAN 7 N ML 215,639,252,601 1,081 71 PALAU N ComL 221,964,659 12,565 72 PANAMA 6 N CivL 42,724,375,045 10,766 73 PERU 6 N CivL 186,304,991,062 6,114 74 PHILIPPINES 7 N ML 279,298,784,316 2,735 75 PORTUGAL 1 N CivL 228,064,215,666 22,018 76 RUSSIAN FEDERATION 3 N CivL 1,662,474,715,110 11,355 77 SIERRA LEONE 7 N ComL 3,163,801,389 441 78 ST. LUCIA N ComL 1,521,136,822 8,492 79 SAMOA N ML 688,543,101 3,558 80 SAUDI ARABIA 3 N CivL 678,729,654,960 21,399 81 SENEGAL 6 N ML 20,184,156,790 1,385 82 SERBIA 3 N CivL 43,675,262,297 6,155 83 SEYCHELLES N ML 1,231,973,526 13,188 84 SINGAPORE 1 N ML 298,944,012,931 54,010 85 SLOVAK REPUBLIC 2 N CivL 102,499,951,243 18,898 86 SLOVENIA 1 N CivL 49,165,961,260 23,826 87 SOLOMON ISLANDS Y ML 870,760,297 1,444 88 SPAIN 1 N CivL 1,418,879,948,439 30,550 89 SRI LANKA 3 N ML 76,485,840,044 3,647 90 SWEDEN 1 N CivL 552,086,083,358 56,340 91 SWITZERLAND 1 N CivL 634,044,597,765 76,553 92 TAJIKISTAN 6 N CivL 7,912,968,730 936 93 TAIWAN, CHINA N 94 THAILAND 2 N CivL 394,514,326,506 5,741 95 TRINIDAD AND TOBAGO 2 N ComL 23,076,489,057 16,840 96 TUNISIA 7 N ML 48,167,866,634 4,308 97 TURKEY 4 N CivL 1,087,875,530,787 13,853 98 TURKS AND CAICOS N ComL 99 UGANDA 5 N ML 34,417,776,841 900 100 UKRAINE 4 N CivL 121,203,317,705 2,829 101 UNITED ARAB EMIRATES 2 N ML 372,810,856,991 40,248 102 UNITED KINGDOM 1 N ComL 2,735,997,359,822 42,017 103 UNITED STATES 1 N ComL 16,710,459,044,262 52,117 104 URUGUAY 4 N CivL 47,559,277,163 13,939 105 VANUATU N ML 754,225,529 2,782 106 ZAMBIA 6 N ML 26,058,142,315 1,641 107 ZIMBABWE 5 Y ML 17,048,679,959 1,234 Data entries: Y (Yes), N (No), NI (No information in the MER Report), Blank (Not applicable or available). EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 57 C. >>> Appendix C. Quotes from Mutual Evaluations Reports on Criticism of Simplifications or Exemptions EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 58 • ANDORRA: … these simplified measures are in effect are not fully supported by an understanding of the ML/ an exemption rather than a reduction in due diligence TF risks. … The risk-based approach was not predicated … (Criterion [Cr.] 1.6, 1.8) … the authorities have not on either the NRA or the CBB’s sector specific risk-based explained how the results of the NRA are to be used to methodology. (IO1) justify exemptions (e.g. those considered under c.1.6) and support the application of any simplified measures • BELGIUM: However, no risk analysis has been performed for lower risk scenarios. (IO1) … but there has been at the national or European level that establishes that all no commensurate risk assessment by the Andorran of these situations present a lower risk. (Cr. 1.8) authorities to determine that it is appropriate to dis-apply aspects of the FATF’s CDD requirements. (Cr. 1.6) • CABO VERDE: To date, there is no risk analysis that demonstrates the existence of situations likely to warrant • ARMENIA: The exemptions and the instances where the application of simplified CDD measures in the ML/ the application of simplified measures are permitted are TF Laws. … The NRA did not identify or classify any based on the FATF Standards rather than being justified sector of as low risk thereby necessitating application of by the findings of the NRA … (Ex. Sum.) exemptions or simplified due diligence measures, despite the mechanism being described in the AML Act. (IO1) • AUSTRALIA: Exemptions from requirements, and the application of enhanced or simplified measures, are not • CAMBODIA: REs exercise … simplified measures based based primarily on the results of the NTA, NRA or other on the generic requirements outlined in … CAFIU has not efforts to assess ML/TF risks. (IO1) Exemptions, and the demonstrated a clear link between these requirements application of simplified measures, are not based solely and a well-founded understanding of risks, through the on low risk but include other variables such as regulatory NRA or elsewhere. (IO1) burden and the desirability of promoting the risk-based approach. (Factor(s) underlying the rating- Rec. 1) • CAYMAN ISLANDS: The broader application of exemptions and simplified measures in the domain of • AUSTRIA: As to date, Austria uses the findings of the risk supervision... have not been substantiated with analysis assessments to a limited extent: to justify simplified due that support a finding of low risk. (IO1) diligence measures (e.g. SDD for savings associations) and support the application of enhanced measures for • CZECH REPUBLIC: The lower risk scenarios for the higher risk scenarios. (IO1) There is a blanket exemption application of simplified CDD measures are provided … in from CDD requirements for lawyers and notaries in case relation to certain institutions and services … The inherent of a number of designated types of customers … without risks corresponding to these exemptions do not stem from proper risk analysis of those customers. (Cr. 1.8, Factor(s) the NRA or other risk assessment and are mostly based underlying the rating-Rec. 1) on the examples provided in the Interpretive Note to FATF Recommendation 10. (IO1) • THE BAHAMAS: … identified low risk situations on the basis of the 2003 FATF Recommendations. These low risk • CYPRUS: Situations in which obliged entities can apply situations are not based on a national assessment of risk. simplified CDD do not expressly exclude situations where (Cr. 1.8) The above measures only allow for simplified there is suspicion of ML/TF. (Cr.1.12) CDD measure on a prescriptive basis rather than on a risk assessment based on analysis of risk by the country • HONG KONG SAR, CHINA: The inherent risks and the FI. (Cr.10.18) corresponding to these exemptions do not stem from the NRA or other risk assessment and are mostly based on • BAHRAIN: Simplified measures are permitted only in the examples provided in the Interpretive Note to FATF defined circumstances. … The circumstances have not Recommendation 10. (Cr. 10.18) been subject to formal risk assessment supporting the application of due diligence … (IO1) • HUNGARY: Simplified and enhanced CDD measures, as set forth under the AML/CFT Act, derive from the • BARBADOS: The application of enhanced or reduced due transposition of the third EU AML Directive and are not a diligence measures detailed in sector specific guidelines result of a proper assessment of ML/FT risks. (IO1) EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 59 • ICELAND: Icelandic authorities report that these SDD FIs and are not consistent with the country’s assessment measures are based on Article 11 of the 3rd EU AML of risk considering that Mauritius has not yet carried out Directive (Directive 2005/60); not on a supranational national or sectoral ML/TF risk assessment. (Cr. 1.8) or national risk assessment or other means of proving low risk. (Cr. 1.8) Icelandic authorities did not provide • MEXICO: There is no prohibition on the use of simplified evidence that the aforementioned situations for SDD were measures when there is a suspicion of ML/TF. (Cr.1.12) based on identified lower risk. (Cr.10.18) • MOROCCO: There is no basis to justify exemptions from • IRELAND: Ireland allows for simplified CDD measures, AML requirements or to support the implementation of for specified customers and products based on the Third enhanced and simplified measures. (IO1) Moroccan EU Money Laundering Directive (3AMLD), … This is authorities have identified low risk areas where simplified however not based on the fact of it being consistent with due diligence measures … would apply…; yet it has not the country’s assessment of ML/TF risks. (Cr. 1.8) been proven whether these risks are consistent with the real or potential risks, in Morocco, as per the NRA • ISRAEL: However, the list of categories included is findings. (Cr. 1.8) not based on adequate risk analysis by Israel or by the FI. There are also no provisions stating that simplified • NEW ZEALAND: There is no prohibition from carrying measures should be commensurate with lower risk out simplified CDD on these customers where there is a factors… (IO4) suspicion of ML/TF. (Cr. 1.12) • KYRGYZ REPUBLIC: The findings of ML/TF risk • NORWAY: Simplified CDD is allowed, but the defined assessments are not used in Kyrgyzstan to justify categories of “simplified CDD” are in fact exemptions exemptions and the use of enhanced and simplified from CDD, and the preconditions for such exemptions measures. (IO1) Application of these simplified measures have not been demonstrated. (Ratings) Results of risk is based on a mere assumption of low risk rather than assessments are not used to justify exemptions and on a robust assessment of ML/TF risks. (Cr.1.8) The support the application of AML/CFT measures depending requirement prohibiting the application of simplified on risk. (IO1) identification measures in situations involving high ML/TF risks is missing from the country’s legal framework. (Cr. • PANAMA: However, the regulations do not restrict the 10.18) application of simplified DDC to cases of verified low ML/ FT risk. (Cr. 1.12) • LATVIA: … Latvian legislative framework permitting the REs to apply simplified CDD with regard to certain • PORTUGAL: There is no risk analysis showing that all categories of customers whenever the identified lower of the cases for the application of SDD measures in the risks do not contradict the national ML/FT risk assessment AML/CFT Law present lower risks, as these cases are but rather simply represent a transposition of the relevant based on the 3rd EU AML Directive. (IO1) provisions of the former EU Directives … This does not amount to using the results of risk assessments to support • SAMOA: While … Regulations allow for simplified CDD simplified measures in case of lower risk scenarios. (IO1) for certain customers where ML/TF risk is low, this has not been tied to the findings of the 2012 NRA. (Cr.1.8) • LITHUANIA: Simplified due diligence (SDD) may be carried…. While the provisions … of the AML/CFT Law • SERBIA: With regard to simplified measures for lower risk do not appear to be unreasonable, there was no analysis scenarios, … the AML/CFT Law provide exemptions from which would support the application of SDD. (IO4) CDD in relation to certain services. Some exemptions (wire transfers) are not based on low risk specified in the • MALAWI: However, there is no clear provision under the NRA or in any other assessment of risk. (IO1) However, law that prohibits the taking of simplified due diligence the circumstances established by the Law are based when the FI or DNFBP suspects ML or TF. (Cr. 1.12) on a presumption of relatively low risk, without it being supported by the previous risk assessment. (Cr. 1.8) • MAURITIUS: However, these simplified measures are not supported by an adequate analysis of risks by FSC or the EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 60 • SEYCHELLES: … the AML/CFT Regulations provides • ST. LUCIA: The basis upon which the application of for application of simplified CDD measures by FIs and simplified measures apply in these circumstances were DNFBPs in relation to certain circumstances … However, not based on the results of the NRA. (Cr. 1.8) Neither of this was not informed by ML/TF risk assessment. (Cr. 1.8) the cited provisions stipulate that simplified measures should not be permitted should not be permitted when • SIERRA LEONE: There is no requirement prohibiting there is a suspicion of ML/TF. (Cr. 1.12) simplified AML/CFT measures where there is suspicion of ML/TF. (Cr. 1.12) EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 61 D. >>> Appendix D. The Financial Inclusion Product Risk Assessment Module (FIRM) The World Bank has been using a stand-alone risk assessment module specifically to help jurisdictions assess the money laundering and terrorist financing (ML/TF) risks associated with financial inclusion products in a systematic and evidence-based way. Figure D.1 shows the structure of the financial inclusion product risk assessment module and its logic. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 62 > > > FIGURE D.1 - Overall Structure of the Financial Inclusion Product Risk Assessment Module Product Redesign Lower Risk High FINANCIAL INCLUSION Lower PRODUCT : Risk Risk Simplified AML/CFT Measures FI PRODUCT PRODUCT MITIGATING RISK FEATURES MEASURES ASSESSMENT Low Low Risk Risk FINANCIAL INCLUSION PRODUCT : Exemption Product Redesign OVERALL OPERATING RISK ENVIRONMENT Input from country’s National ML/TF The assessment is conducted in the following four steps: • STEP 1. Analyzing the product features and their risk • STEP 3. Assessing the impact of country risk context on implications: At the first step of the assessment, the the product: The risk context of the country is important, assessor identifies the features of the product and their because a financial inclusion product that may have low possible implications on the ML/TF risks. For example, risk in a certain country context may not be necessarily low having features such as “availability of international risk in another country. Step 3 of the assessment allows transactions,” “non-face-to-face account opening,” users to reassess the mitigation measures, considering “anonymity,” “delivery through agents,” “availability to the country’s ML/TF threat and vulnerability context. The nonresident/noncitizens,” or “availability to legal persons” quality of the supervision and the institution’s capacity to increases the inherent risk of the products and therefore detect and mitigate the risks are also assessed in this step. the need for stronger mitigating measures. In contrast, Inputs from a country’s national ML/TF risk assessment introducing a cap on transaction size and/or number or are crucial for this step. limiting some of the functions of the product reduces the risk level. • STEP 4. Overall assessment: This final step facilitates the assessment of the ultimate net risk level, which is a • STEP 2. Assessment of risk mitigation measures: The function of the product features, risk mitigation measures, second step of the assessment focuses on the adequacy and the country’s risk context. The country or institution and quality of risk mitigation measures that are linked may consider (or justify) a simplified customer due with each product feature. For example, if the product diligence (SDD) regime only if the assessment results in has a cap for the amount or number of transactions, the lower or low risk. If the assessment results are medium or module asks questions about the existence and quality high risks, the country may use the module as a basis for of the analytical work that informed the decision for this the redesign of the product, then it may reassess the risk cap. If the product allows international transactions, the level. Limiting the functions of the product, lowering the module asks questions about the quality of relevant caps, or improving the control and mitigation measures monitoring mechanisms of the institution. Moreover, if may reduce the risk level of the product. the product is offered through agents, the procedures for onboarding, training, and monitoring of the agents need Until 2015, FIRM was delivered to client jurisdictions under to be assessed. the scope of a three-day NRA workshop. Later, the World EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 63 Bank project teams started to dedicate a separate day to financial intelligence unit, academics and nongovernmental the financial inclusion product risk assessment. During this organization representatives, and private sector participants. one-day workshop the team facilitates a brainstorming and The module has been used by a diverse group of countries in discussion session on the financial inclusion–related facts, the assessments of their current or planned financial inclusion experiences, and observations in the jurisdiction, with a focus products. These countries include Armenia, Bangladesh, on the ML/TF aspect. Then the team trains the participants Botswana, the Democratic Republic of Congo, Dominican on the module and works on some exercises. Following the Republic, El Salvador, Ghana, Guatemala, Guyana, India, workshop, the authorities complete the assessment, write a Jamaica, Malawi, Namibia, Nigeria, Nepal, the Philippines, report, and develop an action plan. Ideally, this action plan Pakistan, Sierra Leone, Sri Lanka, Tajikistan, Tanzania, is expected to focus on the simplification of anti-money Uganda, and Zambia. The assessment of financial inclusion laundering/combating the financing of terrorism (AML/CFT) products was done as part of national risk assessments in rules so as to improve financial inclusion. most of these countries and as a stand-alone assessment in some others. While being used for assessment and testing Before the start of the activity, FMI recommends to client of the ML/TF risk of financial inclusion products, FIRM has countries to establish a working group to conduct the financial served mostly as a diagnostic tool in these countries and has inclusion product risk assessment. This working group so far not been used as a basis for redesign of CDD regulatory usually consists of 10–15 people that include officials from framework. Thus, the module itself has not been subject to the central bank, other financial supervision authorities, the any direct review or comment during any mutual evaluation. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 64 E. >>> Appendix E. Subject Matter Expert Survey Questions Question 1 Despite the progress, financial inclusion continues to be a global challenge. What are the three most common issues in your view? Choices Awareness, literacy, and cultural issues. Demand-related issues (i.e., poverty and lack of need for finance). Supply-related issues (i.e., lack of profitability/feasibility for service providers). Inflexibilities in global standards, and relevant compliance costs on service providers. Infrastructure and technology-related issues. Privacy concerns and/or lack of confidence in financial institutions or state agencies. Others. Question 2 In your view, do the FATF 40 Recommendations themselves hamper financial inclusion and require revisions? Choices Yes. No. Yes, but some slight adjustments are still needed. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 65 Question 3 Please specify the recommendations and relevant issues that require revisions. Question 4 In your view, what are the three biggest challenges about the FATF 40 Recommendations in the financial inclusion context? Choices Inflexibilities /stringencies in the recommendations. Inadequate emphasis on financial inclusion in FATF Recommendations and publications. Understanding and implementation of the recommendations by countries. Capability and experience of FATF and FSRB assessors to assess the financial inclusion context. Lack of guidance and communication of good practices. Fear factor (the country thinks that the assessors will not tolerate exemptions or simplifications). Question 5 Is the FATF adequately vocal and encouraging about financial inclusion? Choices Yes. No. Question 6 How great is the operational cost impact of AML/CFT requirements on the providers of financial inclusion products and services? Choices Prohibitively high. High. Medium. Low. Question 7 In practice, do or can small-scale providers of financial inclusion services/products comply with the following AML/CFT requirements? Choices Yes or No (to each category). Categories Monitoring and analysis of unusual transactions. Identification of foreign or domestic PEPs. Crosschecks with the United Nations Security Council’s List of terrorist persons and entities. Training their staff and agents on AML/CFT requirements. Identifying and reporting suspicious transactions. Follow and understand the regulations and guidance by the FIU (in a timely way). Keep reliable records at least for the last five years. Assessing their money laundering risks. Assessing their terrorist financing risks. Assessing their proliferation financing noncompliance risks. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 66 Question 8 Were you involved in the implementation of financial inclusion projects in any country? Choices Yes, intensively. Yes, but limited involvement. No direct involvement. Question 9 If your response to the previous question was “Yes,” please list the countries where you were involved in financial inclusion projects. Question 10 Can you name 3 countries you find successful in promoting / enabling financial inclusion? Question 11 Can you name three countries you find “unsuccessful” in promoting/enabling financial inclusion? Question 12 How can the World Bank better support the countries in the FATF and financial inclusion context? Question 13 What is your primary specialization? Choices AML/CFT. Financial Inclusion. Payment systems. Prudential regulation/supervision. Other. Question 14 What is your background? Choices International organization. Financial regulation and supervision. Financial sector. Think tank, NGO, or similar. Academia. Other. Question 15 How familiar are you with FATF Recommendations and mutual evaluations? Choices I am very familiar and have in-depth experience. I am familiar with certain aspects that relate to my job/field. I only have general information and am not that familiar with the details. 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