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8/14/2019 Guyana Anti-Money Laundering Memorandum
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Guyana: Anti-Money Laundering
and Counter ing the F inancing of Terror ism
and Proli feration
Road Map
for
The Way Forward
By
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Content
Page
Section 1: Background and Context 1
Introduction 1 Defining money-laundering in the Guyana context 1
Money-laundering and political crimes 2 Money-laundering goals 3 Money-laundering process in Guyana 3
- Placement 4- Layering 4- Integration 5
Facilitating money-laundering 5 Money-laundering methods 6 Off Shore Financial Centres 7
Section 2: Ori gins of Money Launder ing 9
Economic origins 9 Off Shore Financial Centres and Tax Havens 13 Three Streams 14
Section 3: The Regulatory Framework 15 Global 15
- Financial Action Task Force 15- The Ruling International Standards 17
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List of Schedules
Page
Schedule 1: Caribbean Money Laundering: Ten Most Reported Vehicles 6
Schedule 2: Ten Leading Financial Services Offered by Caribbean OFCs 8
Schedule 3: FATF Operational Framework (AML & CTF) 20
Schedule 4: Guyanas Outstanding Core and Key Recommendation (2013) 24
Schedule 5: Guyana: Underground Economy (Faals estimates) 29
Schedule 6: Guideposts for a Strategic Way Forward 34
Schedule 7: Key Markers 39
Schema 8: Road Map for a Strategic Way Forward 40
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Section 1: Background and Context
Introduction
This Memorandum is submitted to the Special Select Committee on Money Laundering,
National Assembly, Guyana. It is hoped that it would form part of the considerations the
Committee take into account as part of its dedicated deliberations on the Anti-Money Laundering
and Countering the Financing of Terrorism and Proliferation (AML&CFT), (Amendment) Bill
2013.
1. Defin ing money-launder ing in the Guyana context?To avoid ambiguity this Memorandum begins with some basic background information, which
informs it throughout. The immediate concern is what is meant by money laundering in this
Memorandum. In financial, economic, and legal theory, (as well as their current practices
worldwide) money laundering is considered an extremely complex and complicated
phenomenon. Not surprisingly, there are numerous definitions of it. Nonetheless, I have found
the definition presented below the most suitable one for introducing the concept in a formal, yet
easy way. That definition is:
Money-laundering represents illicit financial flows that are generated fromcrime, corruption, embezzlement and tax evasion and are then transformedinto legitimate flows
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made to evade tax laws and regul ations in the disposition of this income and wealth that
illegality enters into the picture and therefore, the potential for illicit flows arises. Put anotherway, legitimately earned income and wealth become involved in money-laundering only when
they are transferred outside Guyanas jurisdiction in contravention to its relevant tax laws and
regulations; such laws and regulations would of course include financial and foreign exchange
control regulations.
It is important to remind Members of the Special Select Committee that there is a qualitative
dif ference between tax evasion and tax avoidance. Tax evasion is a criminal offence, because
persons or businesses evade the payment of taxes and other fees that are legally due to the state.
Tax avoidance, however, is not a criminal act in Guyana because the persons or businesses use
legal or regulatory opportunities available to them to avoid paying taxes and fees. This is an
important distinction, although in practice it is difficult to observe and to enforce. The general
working rule is that the weaker is the tax regime of a country or jurisdiction the harder it is to
observe the distinction in practice.
As shall be observed more fully later, arising out of this distinction tax havens have
mushroomed across the world, leading to a distinct subset within the generic phenomenon
known as money-laundering. As implied, tax havens specialize in creating opportunities for
d b i t d t l d l ti B i ll th d thi b ff i
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It is not unusual, however, for jurisdictions where money-laundering thrives, to possess all three
dimensions simultaneously: criminal activity, tax-evasion and terrorist financing andproliferation. In practice, however specialisations have emerged. Thus for example, in the
Caricom region relatively little has been alleged about its role in financing terrorism. Indeed the
specialisation for which the region is famous is tax evasion. Guyana, however, (and to a lesser
degree Jamaica and Trinidad and Tobago) are well known for their links to criminal activity,
especially organized crime in the form of drug-trafficking, trafficking in persons, gun-running,
smuggling, and global cyber crimes.
The distinction between tax evasion and the other forms of criminal activity (including terrorist
financing) is well observed when money-laundering is considered from a Caricom perspective.
There are at least twelve (12) CARICOM jurisdictions, which are recognised worldwide as tax
havens facilitating tax evasion and twenty-two (22) in the wider Caribbean area. The reputation
of all tax havens is such that it carries the presumption they are complicit in tax evasion.
Money-launderi ng goals
As the definition given above has indicated the ultimate goal of money laundering is to transform
illicit flows into financial instruments and funds that are seemingly legitimate. In Guyana and
Caricom, over the years this has become more and more the task of specialist groups of criminals
( l d ) h di ti t f th d l i l f i i l h t th
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purposes, money-laundering can be conveniently categorized as a three-stage process involving:
placement, layering and integration. Each of these is explained in turn below.
Placement and Smur fs
Money laundering is aimed at converting illicit flows of funds into legitimate ones through
placing them into legitimate financial institutions in such a manner that they cannot be traced as
the proceeds of crime. This is perhaps the most difficult stage in the money laundering process
and, as would be expected, it involves several complex procedures. To take an example, if the
illicit sum to be laundered is large then it must first be broken down into smaller non-traceable
amounts so as to avoid attracting attention. This requires multiple transactions.
Usually low-level criminals, (called smurfs) are utilized for this break-down of the funds into
smaller amounts. In some instances the task is so huge and tedious that some researchers have
suggested a pre-wash phase in the laundering of illicit funds. Placement involves the physical
assembly of the illicit funds, before they are placed into a financial depository. This is required
so as not to draw attention to the deposits as they are being made. In several countries an
important instrument used in this phase, is the pre-paid money card. This card not only ensures
anonymity, but it is also easily transferable within the country as well as easily convertible into
other currencies. Guyana needs therefore to monitor this financial product.
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Integration
The final stage of the process requires that after layering, the funds are integrated into the formallegal financial system in a manner where they become indistinguishable from legitimate funds
and therefore free from inquiry and audit disclosure. At this stage it is expected that the funds
cannot be traced back to its criminal origins. Some analysts have sought to add to this stage a
further effort known as legitimization.
Committee Members would recognize by now that money-laundering is a highly skilled criminal
endeavour. The chief skills utilized in this activity are those offered by lawyers, bankers, and
accountants. These do not constitute the typical run of the mill criminal elements, which make
these persons exceptionally dangerous. Their specialist knowledge and skills are placed at the
service of criminal endeavours and not the promotion of national well-being.
Facil itating money launderi ng
Analytical studies of money laundering in Caricom reveal certain definite patterns. First and
foremost, these studies have revealed that the nature of the ruling political regime is a major
consideration. It has been found that the more members of the political ruling class mix and co-
mingle with those reputed to be linked to organised criminal endeavours (whether socially,
through business dealings, or benefitting from political donations) the easier it is for illicit
fl t t bilit b i ti
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commit tax evasion in its jurisdiction are hampered if the jurisdiction develops a reputation for
lawlessness and links to organized crime. Such circumstances invariably invite the glare ofglobal financial surveillance, which is not good for those involved in serious white collar crimes.
Across the Caribbean OFCs are viewed as major development vehicles. Trinidad and Tobago,
which had a couple of years ago flirted with this sort of criminalization has quickly recognized
the error of its ways and is today advertising its ful l compliance with anti-money laundering
agencies as the foundation on which it plans to build itself as the premier financial centre in the
Caribbean, Central and South America.
Finally, another factor facilitating money laundering in Guyana and Caricom is that regional
economies remain, by and large, heavily cash dependent. By this is meant that it is standard for
transactions to be conducted primarily in cash; other financial instruments are rarely used. This
provides an excellent economic environment for smurfsto operate in without drawing attention
to their criminal actions.
Main Methods
As advanced in this Memorandum Guyanas money-laundering is directlyrooted in crime from
the very inception,while for most of the rest of the Caribbean this is not by any means the usual
circumstance. In those other Caricom countries it has been principally founded on tax evasion.
B d i id t di th t t t d l d i hi l i di t d i
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Several observations should be noted about the information displayed in the Schedule. First and
perhaps most importantly, all the money laundering vehicles listed there are distinguished by thefact that they either involve considerable cash (currency) accumulation in small forensically
untraceable currency bills or have the potential for same. Second, it would be very difficult in
most practical circumstances todistingui sh legitimate cash(curr ency) transactionsfrom those
that are illicit. Indeed the law requires that there has to be the legal presumption that nothing
illicit is involved, since an illegal transaction can only be legally established as such through due
process.
Third, all of the listed mechanisms in the Schedule may not be significant factors in all
Caribbean OFCs at all times or indeed at any time. Flowing from this observation, the further
conclusion is that, the importance of the vehicles listed in Schedule 1 (both as a group and
individually) varies among Caribbean countries.
Finally, Members should note that, some of the vehicles used in money laundering, which were
prominent a couple of decades ago are not so anymore. A good example of this is a fake or
fi ctitious bank account. This has been since replaced by the direct capture of banks or other
depository financial institutions and fictitious corporate vehicles by organised groups of money
launderers.
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insurance, securities trading, banking and the like; transport service corporations on the other
hand, may be more interested in the ship and aircraft registry operations of Caribbean OFCs.
The leading types of financial services provided by OFCs are displayed below in Schedule 2. As
can be seen some of these are easily understood from their descriptors: for example international
banking, wealth management and insurance services. (As an aside, it should be noted that there
has been remarkable recent innovation in all types of insurance services provided by Caribbean
OFCs). Some of the descriptors however, such as structured finance and collective investment
vehicles refer to more complex activities. Thus the range of collective investment vehicles is
considerable, including: mutual funds, hedge funds, unit trusts, and joint ventures. Additionally it
should be observed that some of the descriptors refer to realand not simply financial activity, as
is in the cases of foreign direct investment (FDI), and ship and aircraft registration.
Schedule 2: Ten Leading Financial Services Offered by Caribbean OFCs
1. Collective Investment Vehicles
2. Asset holding and protection
3. Foreign Direct Investment (FDI)
4. Derivatives Trading
5. International Banking6. Structured Finance
7. Insurance
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Section 2: Origins of Money Launderi ng
Tax evasion is perhaps the most important single driver of money laundering globally, and
specifically in the Caricom region (other than in Guyana and to a lesser extent Jamaica and
Trinidad and Tobago) where other criminal pursuits are more apparent. Historically, the crime
of tax evasion is reputed to have been first legally prosecuted by the United States Government
as part of its fight against organized crime over eight decades ago (the famous Al Capone trials
of the early 1930s). Money laundering however, as a major organized criminal endeavour firstengaged widespread media coverage much later, in the 1970s and early 1980s. Indeed it was
only in the early 1980s that the first legal cases against money launderers were prosecuted by the
US authorities. It is clear that, from the outset, those cases were closely allied to official
onslaughts on major organized crime including, murder for hire, racketeering, and trafficking in
narcotics, arms, and persons.
Economic Origins
There is wide consensus among financial, economic, and international legal analysts and
historians that the origins of money laundering are rooted in two economic phenomena. One is
the historic distortions that were still being perpetuated in the global economy during the 1960s
and 1970s, well after the profound economic dislocations of World War II. And, the other has
been the paradigm shift that was occurring (although not sufficiently recognised at the time) in
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the interest rates, which banks could pay/charge, as well as on the specifications of the loans that
banks could make (sectors, time profile, period of loan etc). It should be pointed out that thesepolicy prescriptions were pursued eagerly in both rich and poor countries alike. It was indeed the
politi call y correctapproach of the time!
It was in these circumstances that the Euro-dollar (and later the Euro-currency) financial
markets emerged laying the platform for the rise of Off Shore Financial Centres (OFCs) and the
explosive growth of money-laundering. What is the Euro-dollar market? With restrictive
financial regulations in force, banks based in Europe soon realized that any US dollar
denominated accounts, which they could obtain would be beyond the effective regulatory reach
of the US Federal Reserve System. Under existing laws these deposits could be accumulated
therefore, at a premium interest cost and then lent out to investors beyond the reach of either the
United States jurisdiction or that of the National Authority where the bank was based! Thus was
created the Euro-dollar financial market. To be sure the current formal definition of this market
is one for United States dollar-denominated deposits at foreign banks (or foreign branches of
US banks).
Members of the Special Select Committee should note that it is only because of its origin in
Europe that the financial market was termed the Eurodollar market. This name has no necessary
ti t ith th E t th E i d d it d t d b th
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The basic conclusion to observe is that banks saw the opportunity for attracting deposits, which
were outside the jurisdiction of both local and foreign banking supervision and regulationthrough paying premium interest rates. However, the universal rule still applied: the less is the
banking supervision (and regulation) in place, the greater is the risk these deposits are taking.
Furthermore because financial markets adopted a no questions askedacceptance of Eurodollar
and Eurocurrency deposits, these have become attractive to two groups of economic agents. One
constitutes those countries and banking/financial venues outside Europe, which were prepared to
compete with Europe for these deposits. And, the other is that group of economic agents seeking
to move funds in a clandestine manner; that is, beyond national supervision and regulation.
It is these two incentives that spawned the worldwide emergence of OFCs and alongside these
money-laundering on a world scale including in Guyana. At this stage Members would have
come to realize that they cannot expect to form an intelligent appreciation of money laundering,
and fulfil their Parliamentary responsibilities in regard to the several serious challenges Guyana
presently faces in this regard, without, at the very least, a rudimentary appreciation of some
related contextual issues.
Although OFCs were initially located in selected European countries, under competitive
pressures these markets first spread to other countries within Europe and later beyondEurope as
ll A th l tt i b f E i i liti t t t
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are located in non-sovereign territories like the Cayman Islands (73 per cent of the total
amount) while most of the sovereign states individually hold amounts far less than one -twentieth of that total.
Europe also played very active roles in promoting the establishment of OFCs in these venues
because the sector was seen (next to tourism) as the most potentially vibrant one for the
development of small poor open economies. This policy preference was aided by the low start-
up costsof the sector. Consider the following information in support of this view: 1) this sector
reduced the burden (costs) on European treasuries for promoting economic well-being in those
territories it had responsibility for, as it only required Europes implicit endorsement to advance.
Once investors were convinced Europe supported the OFC sector as a leading investment
strategy, they felt confident in risking their funds in these locations. 2) While low or zero taxes
would have constituted the prime attraction for potential investors, the economic benefits that
otherwise came to a small economy in the form of hotel accommodation, travel, entertainment,
and other services were, in the absence of tax benefits, ample for offering these economies
diversified economic structures and good livelihoods. 3) Other supportive measures were also
low cost; for example, passing laws and regulations regarding: bank secrecy and anonymity;
minimal surveillance of financial transactions; a regime for banking regulation; and, tough laws
deterring extradition of persons legally resident within the jurisdiction of OFCs.
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OFCs and Tax H avensAs earlier illustrated in this Memorandum the origins of money-laundering as a global
phenomenon are closely tied to the international spread of OFCs and the opportunities these
provide for the spread of tax avoidance and evasion; the latter being of course a criminal offence.
At the early stages of this development OFCs were primarily seen as opportunities for tax
avoidance because of their low tax status; their transition towards offering tax evasion came
later.
As it turned out it was the European countries, which favoured the development of OFCs as an
appropriate strategy for the diversification and development of its small open low income
territories, dependencies, and ex-colonial possessions. The European connections to these
jurisdictions provided investors with confidence in their political and social stability.
Furthermore, shortly after this process started, the Group of Seven leading industrial economies
(G7) also endorsed this strategy, especially for those OFCs located in small poor open
economies.
As events unfolded however, more and more investors came to see these Centres as offering not
only opportunities for tax avoidance, but for tax evasion as well. And, the Authorities in most if
t ll OFC ith f ilit t d thi t iti t d bli d t it V th ft th
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Three Streams
The emphasis this Memorandum places on the role of OFCs (Tax Havens) as a driver of moneylaundering is justified historically. Presently however, it should be emphasized there are two
other drivers that are at the very least, ofequal global and regional signif icance. One of these
has accompanied tax evasion from its inception, while the other has emerged as a principal driver
only since the early 2000s; the former is organi zed crimeand racketeeringand, the latter is the
fi nancing of terr orismand the prol if eration of weapons of mass destruction.
As a driver organized transnationalized crime and racketeeringincludes such heinous criminal
endeavours as trafficking in narcotics, arms, persons, counterfeit artefacts, as well as illegal
services (prostitution, gambling and blackmail information). Specifically, for our purposes it is to
be stressed that is in this stream that Guyanas money laundering is firmly located. All the
crimes listed above typically involve cross-border transactions and are therefore founded on the
existence of international markets for their wares. The anonymity, confidentiality and secrecy
provided by laws and regulations serve to create an environment in which criminal practices do
not only thrive, but the illegal proceeds thereby generated can be readily converted or washed
in a manner such that they emerge as legitimate proceeds. The third driver, which is the
financing of terrorism and proliferation emerged to the fore following the terrorist attacks on the
United States (9/11/2001).
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Section 3: The Regulatory Framework
GlobalA key proposition put forward at the end of the previous Section is that there have been three
principal drivers pushing money laundering and related concerns to the level of massive global
threats these now represent. To recall these three drivers are tax evasion; organized crime and
racketeering; and terrorist financing and its proliferation. In actuality though, these three drivers
comingle and are identified separately in this Memorandum solely for purposes of analysis and
presentation. Experience worldwide shows that few, if any of the major criminal networks found
to be involved in organised money laundering are motivated by one driver only. Despite this
practice, it is still fair to assert Guyanas money laundering is firmly located within the second
driver; that is, organized crime and racketeering, while the rest of Caricom is, by and large,
situated within the first driver; that is, tax evasion, which is directly related to their status as
OFCs.
As was pointed out earlier, while the G7 Group of Leading Industrial Economies had initially
supported, if not encouraged, the proliferation of OFCs in the Caribbean, during the latter half of
the 1980s the Group had become quickly disenchanted, if not hostile to this development. And,
at the G7 Summit of 1989, the Group established a F inancial Action Task Force (FATF ),
situated in Paris, France to remedy this situation.
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attacks in the United States on 9/11/2001, the FATF hurriedly expanded its mandate to deal with
matters related to the financing of terrorist organisations. For this purpose Eight Special
Recommendations were announced in 2001, and later in 2004 a Ninth Special Recommendation
was added to the eight on terrorist financing.
Seven years after the first revision of the Forty Recommendations (in 1996), these
Recommendations were again revised and published in 2003. These Forty Recommendations
have been since endorsed by more than 180 countries and after later revisions these presently
represent the definitive in ternational standardsto guide regulatory supervision and enforcement
of anti-money laundering measures and combating the financing of terrorism and proliferation.
Over the years several affiliated bodies from different regions around the world have joined
FATF. These are described as FATF-style Regional Bodies (FSRBs). Among them is the
Caribbean Financial Action Task Force (CFATF ). Other bodies have also attained observer
status as Observer Organisations; these include the International Monetary Fund (IMF), World
Bank, and United Nations special agencies.
In 2012, following on the FATFs third round of mutual evaluations of Member Countries,
FATF reviewed and updated their Recommendations (Mutual evaluations are a central feature of
FATF ti Th l ti d t k i d t h M b St t
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A summary therefore of FATFs main tasks today would include: 1) examining money
laundering techniques and trends, because this is a fast changing area of criminal endeavour and
in order to be able to effectively regulate it, the Authorities need to be one or more steps ahead of
the criminals 2) setting international and national standards, 3) effectively implementing the
legal, regulatory and operational measures for anti-money laundering and combating the
financing of terrorism (AML&CFT) as well as the proliferation of instruments of terror, mass
destruction and related threats to the international financial system, and 4) working
collaboratively with international, regional and national stakeholders.
The Ruling I nternational Standards
What are the ruling international standards today? As was noted the original publication of the
Financial Action Task Force (FATF) Forty Recommendationsin 1990 had been later revised in
1996 and again in 2003. In between these two years, and following on the terrorist attacks in the
United States on 9/11/2001, Eight Special Recommendations were added to the Forty, and
shortly thereafter the Eight was expanded to Nine. Following on the Thi rd Round ofMutual
Evaluations among its Members, the FATF in collaboration with the FATF- style Regional
Bodies (FSRBs) and Observer Organisations thoroughly revised and updated these
Recommendations and released them in 2012. This 2012 FATF document detail s the defi ni tive
International Standards for combating money laundering, the financing of terrorism and
lif ti f f f d t ti Th 2012 d t h t k i t t th
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Policies and Coordination
Under this grouping of international standards, the main items that are dealt with include 1) the
identification and assessment of risks which Members should routinely undertake, 2) the need for
their continuous assessment of these, and 3) the follow up actions that should be taken by the
Authorities and financial institutions. This grouping also details the required levels of
cooperation and coordination of national policies (both internally and externally) on anti-money
laundering and combating terrorist financing (AML&CFT).
Money Launderi ng and Confi scation
A standard that FATF emphasises is the requirement that money laundering is comprehensively
criminalised on the basis of the Vienna Convention and the Palermo Convention. Based on these
two Conventions, and together with the Terrorist Financing Convention, the Competent
Authorities should have power to freeze, seize and confiscate property that is money laundered;
the proceeds from (and or connected to) money laundering offences; as well as the proceeds
from (and or connected to) terrorist financing. These should be allowed to take place with or
without a criminal conviction along with the offender being required to demonstrate the lawful
origin of the property alleged to be liable for confiscation.
Terr orist F inancing and the F inancing of Proli feration
FATF d t it b i f i i li i t i t fi i th T i t Fi i
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record keeping 3) the treatment of politically exposed persons 4) the handling of cross-border
transactions (including correspondent banking, money transfer services, wire transfers and new
financial products appearing in the market place) 5) internal controls and foreign
branches/subsidiaries 6) activities in designated high risk countries and 7) reporting of
suspicious transactions (including tipping-off and confidentiality). The grouping also deals with
the treatment of related non-financial businesses and professions (lawyers, accountants, business
consultants).
Transparency and Benefi cial Ownership
This grouping addresses measures to prevent the misuse of legal persons and legal arrangements
for purposes of money laundering and terrorist financing. This requires that there is adequate,
up-to-date and timely information on beneficial ownership and control of legal
persons/arrangements in both financial businesses and related non-financial businesses and
professions.
Powers/Responsibi li ties of Competent Author iti es
This grouping addresses the central issue of the powers of enforcement and regulation by the
Competent Authorities. It speaks to their required regulatory and supervisory functions and
explicitly deals with the powers of Supervisors, the Financial Intelligence Unit, Law
E f t ll th I ti ti d D t ti b di ( li t l f
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of the Proceeds from Crime and the Financing of Terrorism (2003). It also provides for mutual
assistance among countries, especially in relation to such issues as information exchange; assets
seizure and confiscation; extradition; and other forms of cooperation that might arise. For the
convenience of Members of the Select Committee, these groupings together with the summaries
of the key items, which are included within each are presented in the Schedule below:
Schedule 3
FATF Operational Fr amework (AML & CTF)
Targeted Ar eas Selected I tems of Concern
1. Policies and Coordination Risk assessment; risk-based approaches; nationalpolicy; and, institutional cooperation andcoordination.
2. Confiscation Fixing offences; corresponding penalties &measures.
3. Terr orist F inancing and Proliferation The related offences; proliferation and sanctions;and, the treatment of non-profit organisations.
4. Prevention Secrecy; record-keeping; customer due diligence;politically exposed persons; cyber transactions; othersuspicions transactions; and, related matters (tipping-
off, disclosure, investigation)
5. Transparency//Beneficial Ownershi p With special reference to legal persons and legalt
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the Nine Recommendations no longer stand separate and apart from the Forty
Recommendations. In other words, the countering of the financing of terrorism and proliferation
of weapons of mass destruction are now fu ll y mainstreamed in to theForty Recommendations.
Secondly, as part of its revision process, the FATF has set about deliberately and systematically
to incorporate the global financial oversight and regulatory frameworks of both the International
Monetary Fund (IMF) and the World Bank into the assessment methodology it now requires
Member States to follow.
And, finally as part of the above mentioned far-reaching changes, the FATF has also set about to
be inclusive in devising these changes. This has meant the systematic involvement of other
stakeholders in its mission and operations; the principal stakeholders that were engaged are from
civil society, the private sector, professional bodies, and academia.
While such developments are no doubt quite striking, they should not lead Members of the
Special Select Committee to forget the originalset of considerations that impelled the formation
of the FATF, as these still apply. To recall, the leading industrial regions and organisations (that
is Europe, North America, G7 and OECD) while initially strongly promoting Off Shore
Financial Centres (OFCs) as a major development vehicle for small poor open economies, this
attitude was radically revised when it came to be realized that OFCs not only threatened to, but
i d d d i i th i i d i ti l th fi l iti f th i t t
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For our present purposes the key overall conclusion Members should draw from this presentation
on the 2012 FATF international standards is that the regional operations of the CFATF, (which is
designated a FATF-Style Regional Body (FSRB)), fall entirely under the rubric of FATF
International Standards. Indeed it would be fair to assert that, with or without the CFATF,
Caribbean/Caricom Members of FATF (including Guyana) would still have been expected to
fully implement the FATF International Standards. In a real sense therefore the existence of the
CFATF is in part attributable to the need to soften the blunt reality of the FATF.
As indicated earlier the FATF standards are applied to Member States through a rigorous mutual
evaluation procedure, which has already been described. This procedure, as we have seen, is
conducted on the basis of an assessment methodology that is applied universall y. Indeed in
order to avoid ambiguities and uncertainties arising from differences in local and regional
situations, the FATF has supplemented its written international standards with the following: 1)
interpretive notes 2) definitions and a glossary of terms 3) worked examples, and 4)
guidance/best practices papers and other similar documents.
Regional
Caribbean Financial Action Task Force
CFATF emerged out of the national indignation and outrage the OFCs felt on the announcement
f th f ti f th FATF Th t i ti t d b th t th ti t i ht
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fiscal and financial regulations designed to negate the attractiveness of OFCs. These included: 1)
not allowing deductions to non-compliant jurisdictions 2) withholding taxes on payments to
residents in non-compliant jurisdictions 3) stiffening the reporting requirements of non-
compliant jurisdictions and also terminating tax treaties with these. Broader economic
restrictions were also applied in some instances, such as refusal to grant aid; technical assistance;
maintain special surveillance; as well as placing additional charges on transactions involving
non-compliant jurisdictions.
Caricom countries were perhaps the most vocal opponents of the FATF actions at the time. This
did not last long, as under the pressures from the leading industrial powers they felt compelled to
fold. As matters have turned out the Caribbean area, led by Caricom was the first to establish a
FATF-style Regional Body (FSRB) - the CFATF. Ironically, today this body that originated in
protest now epitomizes regional self-driven efforts aimed at becoming the best executing
regional agency (FSRB) dedicated to the fulfilment of FATFs mission!
CFATF comprises 29 Caribbean Member States and is headquartered in Port-of-Spain, Trinidad
and Tobago (Notably, Cuba is not a Member, but there are initiatives currently underway to
secure this). CFATF has several Observer Organisations, attached to it including the
Commonwealth Secretariat; European Commission; IMF; World Bank; IADB; and several
U it d N ti i l i d li ith i d i d t i t fi i d
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regulations, guidelines and other requirements, as well as the capacity, implementation, and
effectiveness of the regulatory and other systems in place.
Guyanas last on-site visit by the CFATF Team arising from its MER was in 2011 and the
resulting Report was adopted by the CFATFs Council of Ministers the same year (2011). As a
result of that Report, Guyana was placed on expedited Foll ow-Upand required to report at every
CFATF plenary. A Third Follow-Up Report was presented towards the end of 2012. Later a
Fourth Post-Plenary Final Follow-Up Report was presented in 2013.
The Fourth Report summarized Guyanas progress as follows: 1) Anti Money Launder ing and
Counter ing the Financing of Terrorism (Regulations) was enacted. (This was designed to
supplement the existing law by focussing on identification, record-keeping, reporting and
training procedures) 2) theAnti- Money Laundering and Countering the Financing of
Terror ism (Amendment) B il l of 2013 was laid in the National Assembly on April 22, 2013 (this
was one week before its deadline for implementation- April 30, 2013). The Bill is designed to
meet MER recommendations. Additionally, the F inancial In telli gence Uni t (FI U) started
training programmes for relevant agencies in order to heighten their awareness and
understanding of their responsibilities and legal obligations. The resources of the FIU
(human/physical/financial) were also augmented in order to build its capacity.
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Section 4: Threats Money Laundering Pose to the Modern State
The end of the last Section carried a brief description of the current situation of Guyana in regardto the CFATF. The next Section will be devoted to addressing the way forwardin light of the
present impasse with regard to the proposed new anti-money laundering legislation and
Guyanas broader relations with CFATF. Members however need a broad indication of the
scale and extent of money laundering at the international level, in order to appreciate the highly
significant threats this phenomenon presently poses to the functionality of the modern state and
operations of the global economy. This is provided in this Section.
Threats
While the threats posed by the financing of terrorism and the proliferation of weapons of mass
destruction are in a sense, vividly self-evident, it is therefore important that readers do not as a
consequence underestimate the systemic threats which, the growth of money laundering poses to
the modern state. Four of these threats are indicated below.
First tax evasionlies at the heart of all forms of money laundering, and therefore, in so far as it
thrives, this systematically erodes the fiscal capacity of states. And, with less revenue at their
disposal, modern states are less able to afford all types of expenditures, ranging from social
services and public infrastructure to national and personal security.
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markets presumed advantages for the efficient accumulation of income and wealth in market-
based economic systems.
Fourth, the negative impacts of these criminal-led distortions of markets are not only felt among
economic agents, but through them on the economic regulators as well. Thus to take an
everyday example, the heavily relied on open market macroeconomic regulation of the modern
economy becomes fatally disrupted when criminally motivated transactions become significant.
This has been revealed in situations where a criminally-led underground economy drives the
production of economic livelihoods thereby resulting in the market regulation of the formal/legal
economy becoming largely ineffectual.
The four cases described above reveal the gravity of the threats, which money-laundering
potentially poses to the modern state. Indeed, one can further argue that these threats strike at the
core of the dynamic governing the extended reproduction of the capitalist economy. Members
can from this observation therefore, better appreciate why in the 1980s the leading industrial
nations reversed so rapidly from promoting OFCs as a development vehicle towards efforts to
contain their growth to the strict provision of legal and legitimate financial services only. The
global size and scale of money laundering (discussed below) also shows how deeply embedded it
is in cross-border transactions in the present international economy. Indeed the Canadian
th iti h ti t d th b d i t f t i t ti i th i t t
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be known. However organizations associated with the FATF have offered estimates. Thus the
United Nations Office on Drugs and Crime has estimated criminal proceeds at 3.6 percent of
global GDP and money laundering per se at 2.9 percent of global GDP. This is within the IMF
range.
Currently, the annual value of global money laundering most commonly reported is at least
US$1.6 trillion. The United Nations (2010) has estimated that, in the decade 2001-2010, the
annual money laundering outflow rate from poor statesaveraged 8.6 percent. This compares to
their real GDP growth rate of 6.0 percent over the same period. Of note these estimated outflows
combine both proceeds from crime and legitimate funds transferred outside the jurisdictions of
states in contravention of their tax laws and/or incurring breaches of exchange control
regulations. Of great concern losses of poor states from tax evasion have been estimated at ten
times larger than the overseas development assistance (foreign aid) they had received over the
same period.
The Third World Economics (2013) cites a joint study produced by the African Development
Bank and Global Financial Integrity, which revealed that while Africa is the most aid-dependent
region in the world, with ODA inf lows approximating US$50 bill ion annuall y, yet over recent
decades (1990-2009) about US$1.5 tril lion i lli citly left A fr ica. This huge outflow is linked to tax
i ti d l d i St iki l h f thi d k it h b
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Section 5: Strategic Road Map for the Way Ahead
GuidepostsThis Section portrays a strategic road map for the way aheadin light of the current impasse in
Guyanas relations with the CFATF. There are four principal guideposts that should govern the
way ahead, namely:
1) The sizeand scaleof the money laundering threat to Guyana
2) The assessment of governments strident demands for the immediate passage of the
legislati ve amendments before the Special Commi ttee
3) Thedimensionsof Guyanas money laundering situation and
4) The core weaknesses of Act . 13 of 2009, which the proposed legislative amendments
seek to address. These are considered in turn below.
Guidepost 1: Size and Scale
The most important consideration for devising a strategic way ahead is the magnitude of the
threat posed by money laundering and related concerns. The FATF (and by extension the
CFATF) has adopted the position that since these matters are criminal in nature, no one can
measure their truemagnitude. While strictly speaking this is correct, the use of proxy indicators
combined with personal judgements still have useful roles to play in providing estimates. As was
earlier indicated, several renowned international organisations have offered such estimates; for
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These proxy indicators suggest the size and scale of the money laundering problem in Guyana is
considerable. This assessment also confirms to my personal professional experiences.
Pertinently, a recent Kaieteur News Editorial (September 29, 2013) under the caption Guyana
and the drug tradestates:
The drug trade is pervasive ... the authorities would complain they cannot getinformation ... but we could catch the most serious drug dealers on tax evasion ...
we have so far failed to hear or read about anyone being prosecuted.
The Editorial goes on to assert bluntly:
Money laundering is the order of the day and those tasked with correcting the
situations are weaker than could ever have imagined.
Although the Editorial does not provide numerical estimates, Members of the Select Committee
would realize that it represents a fairly commonplace perception among the Guyanese public.
Schedule 5: Guyana: Underground Economy (Faals estimates)
Period Average size (% of off icial GDP)
1970s 39.70
1980s 76.00
1990-2000 47.18
2001-2008 61.00
Source: Thomas, Jourdain and Pasha, Transition, Issue 40, 2011
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the government itself has been dealing with these matters since the 2000s, while these parties
have not! Crying wolf also allows the Governmental to represent to CFATF that delays and
deficiencies in Guyanas fulfilment of its Recommendations are due to present local politics, or
worse (better!) the irresponsibility of the Opposition.
At this juncture the earlier assessment of the CFATF needs to be recalled. The main inference
from that assessment is, I believe, the intr insic ambiguityof that body. While arising out of anti-
colonial and anti-imperialist rhetoric in defence of the sovereignty of small Caribbean states, as
was observed CFATF now zealously pursues the main Mission of FATF. Because of this
ambiguity I believe CFATF would lean towards supporting Caribbean states, save and except
where it is amply demonstrated their non-compliance with the Forty Recommendations (2012) is
extreme, flouting, and in blatant disregard and disrespect of that body. The position taken here is
supported by the following considerations: 1) In regard to Guyanas compliance, CFATF has
rightly distinguished between the legislative and non-legislative elements of its
Recommendations to Guyana. CFATF appears to have accepted the latter elements are being
satisfactori ly addressed and 2) there is absolutely no intended automaticity to CFATFs
required actions against Guyana, if the legislative element is not fulfilled. First, CFATF has
executive discretion over the steps it can take if the legislation is not passed by November.
Second, CFATFscall to its Members is: to consider implementing counter measures to protect
th i fi i l t ( h i ) Thi i di ti ll A d thi dl ft th ll
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Guidepost 3: Dimensions
Recognizing that thus far the Special Select Committee would have focused on the legal aspects
of the proposed legislative amendments before that body, Members should however realize that
the reformof the Anti-Money Laundering and Countering the Financing of Terrorism Act 2009
cannot be reducedto a task of legal draf ting.
Money-laundering challenges in Guyana are inherently multi-dimensional. The challenges are
political, in the sense that successful challenges to money-laundering require politi cal will on the
part of the government; trust and cooperationamong the government and Opposition; as well as
transparency and inclusiveness in the process of tackling this, in order to ensure citizens
willingly engage in a social contract whereby they give sustained support towards creating a
sound framework for anti-money laundering and countering the financing of terrorism efforts.
An indispensable ingredient in the pursuit of this is public awareness of the gravity of the threats
these pose. Without that awareness the Select Committee will find little public support for its
efforts.
The challenges are also economic because money laundering is a considerable part of Guyanas
underground economy. A substantial number of livelihoods are dependent on the illegal
workings of money laundering. Moreover, econometric studies on money laundering reveal its
ti i t i th fi i l t bilit (i d i k f f d t ti l
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As the Editorial quoted earlier reveals, the Authorities do not seek explanations of sudden
displays of wealth and neither does the public clamour for this to be done. As my extended
essays on Guyana: the Cr imi nal ization of the State argue, the nexus between political elites and
organized criminal groups has created a cabal that systematically utilizes its combined influence,
power, authority, and resources to make the state progressively a vehicle for the pursuit of
criminal endeavours.
For this and other reasons, I had gone as far as to suggest this phenomenon represented a new
state typology, while bearing resemblance to several other modern state deformations. This
guidepost therefore, highlights the reality that tackling money laundering and related challenges
in Guyana is simultaneously a political, cultural, economic and social transformative task. This is
not for the faint-hearted and non-visionaries.
Guidepost 4: Core Weaknesses of Act 13, 2009
The fourth guidepost requires the Committee to take its bearings from the core weaknessesof
the present Anti-Money Laundering and Countering the Financing of Terrorism Act, 2009.
Several systemic weaknesses have been widely acknowledged.
The first of these is that banking, legal and other analysts with whom I have discussed this
bl h ti t d th t t l t 70 t f th t d diti f th t A t ( hi h
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Consider the following examples: 1) In addition to lacking functional autonomy and
independence those bodies are understaffed and under-financed 2) With the penetration of
criminal elements into the workings of the state, it has become well nigh impossible to design a
system for regulating the identified regulators in the Act. The fact that the Executive does not
presently control the National Assembly makes that body an attractive location for oversight
functions. That body does not have however, to overload itself by seeking to perform all these
functions itself, but should seek to create what hopefully could become delegated independent
bodies. A good example is the Bank of Guyana, which already performs its banking oversight
role with a reputation for integrity and independence.
Thirdly, the one body established in the Act that is dedicated solely to combating money
laundering is the Financial Intelligence Unit (FIU). From the outset this has lacked the capacity
required to fulfill its tasks. As a result the FIU is distinguished by having no great track-record of
effective enforcement of the law; no asset seizures; weak cooperation with other nations; and,
little impact on addressing citizens with the legal status of politically exposed persons as
written into that Act.
Fourthly, the Act does not read (to laypersons) as if it is strategical ly focusedon the areas of
vulnerability for money launderers. These are the so-called choke points identified earlier as 1)
Th i t t hi h th illi it h t G fi i l t ( i t f l t
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Drives the increasingly complex multi-dimensionality of money launderingchallenges and
Highlights the systemi c weaknessesof the original Act, Number 13, 2009.
The Schedule below highlights the key features of the guideposts for a strategic way forward that
is designed to address the current impasse facing Guyana and the Caribbean Financial Task
Force (CFATF) as together they seek to contend with the legislative part of Guyana s
outstanding obligations the CFATF (and by extension the global Financial Action Task Force -
FATF). These guideposts provide dynamic guidelines for not only resolving the immediate
stalematebut also providing the basis for a strategy designed to reform anti-money laundering
and combating the financing of terrorism and proliferation over the medium-term in to the long-
term.
In summary these guideposts are rooted in the acknowledgement of 1) The considerable scope
and scale of the money laundering threat in Guyana 2) The profound multi-dimensionality of
that threat, covering as it does political, economic, social, cultural and behavioural spheres of life
3) The tension, which exists between the Government and the Opposition due to call for
immediate action by the former over the perceived threat of external sanctions by the CFATF
and FATF 4)The core weaknesses of the current money laundering legislation (Act 13 of 2009).
S h d l 6 G id t f St t i W F d
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Following on these guideposts, the next consideration is specific markers Members of the
Special Select Committee on Money Laundering should apply to the legislative amendments
before them. The first set of these markers should focus on incentivizing the frontline
regulatory/oversight bodies and others that are engaged in countering money launder ing and
combating the fi nancing of terr orism and prol if eration.
Marker 1: Earmarking Seized Assets for F rontl ine Bodies
Key among the glaring weaknesses observed with the existing intelligence and enforcement
authorities in Guyana are the limited resources they have to fulfil their functions. It is therefore,
recommended that the Committee should consider in detail, and then apply, a legislative
schedule for rewarding those bodies (and their personnel) with part of the proceeds of assets
seized form money launderers and terrorist financiers. This will not only incentivize the frontline
bodies, but it will help also create a supplementary basis for the sustained financing of these
bodies.
However, it should be made clear however that this is a recommendation aimed at generating
supplementary resour ces for the frontline agencies and personnel. It would be ill-advised to
depend on this for providing the regular resources of public bodies. Indeed it is vital for
personnel of the regulatory and oversight regime to be principally motivated by their
f i l t i i d bli ti t t t th l f l d t t fi i l i
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Marker 3: The Technology Gap
The second setof markers the Committee should keep in mind relates to the likelihood (for all
sorts of reasons that directly or indirectly relate to available resources) of a widening gap in IT
technology available to money launderers and financiers of terrorism as against Guyanas
Competent Authorities. Worldwide this tension between the capacity of states and criminals
generally plays a central role in determining criminal outcomes.
Criminals seek to harness innovation and ingenuity to their cause because they recognize that
these attributes enhance their ability to game the Authorities. The Authorities therefore cannot
risk falling behind and allowing a significant technology gap to emerge. And, since the best
general motivating force making for the availability of skills is willingness to pay, the
Authorities have to be in a position to recruit these skills for themselves. Here again the proceeds
from assets seizure can help.
Marker 4: Cost of Compli ance versus Non-Compli ance
The general economic expectation is that those affected by regulatory regimes would, if they
were rational, weigh the probabilistic cost of their compliance against the costs of their non-
compliance. Committee Members therefore, need to weigh the outcome of this calculation as
th d t l i l ti Th d fi it th lti d t f
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match the growth of the other (the Competent Authorities capacity to enforce the rules). Based
on worldwide experiences of modern public policy management it would be safe to prescribe
here that the credibilityof rule-makingand policy-making bodiesis essential to the successful
pursuit of policy changes, including reforms.
Second worldwide experience also reveals that there is always one potentially fatal threat facing
all regulatory regimes. That is, regulatory capture of the regime by those it is established to
regulate. With the large amount of estimated sums laundered in Guyana, this is indeed a very real
risk, which the reform recommendations should consider.
The flip side to the coin of regulatory capture is the real danger that the legally defined
regulatory bodies are unable to display functional autonomy and independent action. Many
factors can affect this outcome, not least of which is the professionalism of those who are called
upon to Head those bodies. These appointments therefore, should not be made by the Party in
Government alone or its Ministers they should be subject to the approval of the National
Assembly.
Marker 7 & 8 Socio-cultur al political dynamics
Again there are two principal markers under this heading. Legislation of the scope before the
S l t C itt l d if it t f f d d t t d
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intense outside political leadership. In such an environment political persons are able to
deter regulators and are therefore allowed to act with considerable impunity. The main
recommendation I have here, is to let peer pressure work by devising a mechanism fo r naming
(and in so doing shaming) those suspected of infringements and irregularities. Those names can
be forwarded to the Integrity Commission.
Markers 9-11 Reporti ng Requirements
The next set of three markers all relate to the reporting requirements of the bodies listed under
the Act. Three of these requirements are of principal concern. The first marker is clearly to
whomthe various Competent Authorities should report. While this would have to be defined in
terms of the specific bodies, the principle that should rule is for reporting to finally reach the
National Assembly. It is my view that if al lMembers of the National Assembly are given these
reports that would help ensure their adequate circulation to the general public.
The second marker is that reporting should be mandatory and automaticfor all bodies obligated
to do this. The law should use the verb shall and not may as it is now frequently does under
Act #13, 2009 where reporting is concerned,
Thirdly, to underscore the mandatory requirements for reporting, the legislation should affix
i t l ti f ll th b di d d f lti l i d d t i d d
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Schedule 7: Key Markers
Number Markers
1 Earmarking Seized Assets for Frontline Bodies
2 Earmarking for the General Public
3 Technology Gap
4 Compliance Vs Non-compliance Costs
5&6 Regulators and the Regulated
7&8 Socio-Cultural- Political - Dynamic
9-11 Reporting Requirements
12 Related Governance Changes
Source: Authors construction
For the convenience of Members of the Special Select Committee, the Schema presented on the
next page offers a visual guide of the strategic road map for the way forward, in regard to the
money laundering situation in Guyana.
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40 Page
Schema 8:Road Map for a Strategic Way Forward
7
G
U
I
D
E
P
O
S
T
Item
Magnitudeof Threat
Indicators
Numerical estimates proxy indicators,& informed opinion
Prescription/Assessment
Highly significant
Dimension Manifestations in economic, political,social, cultural, behavioural spheres
Profoundly multi-dimensional
Guyana -CFATFRelations
Outstanding Recommendations (Core,Key, Other) (Compliant/Partiallycompliant/Non-Compliant)
Core and key = 15Non core and Non key =25 (partially 10) and (non-compliant) (15)
Act # 13, of2009
Core weaknesses (implementationdeficit; lack of independence ofdesignated Authorities; systemicweaknesses of FIU; not focused enoughon choke pints).
Carefully revisedlegislative amendments, inlight of Guideposts &Markers
Markers: 1 2 3 4 5 6 7 8 9 10 11 12
Key: 1 = Earmarking Seized Assets for Frontline Bodies
2 = Earmarking for the General Public
3 = Technology Gap
4 = Compliance Vs Non-compliance Costs
5&6 = Regulators and the Regulated
7&8 = Socio-Cultural-Political-Dynamic
9 to11 = Reporting Requirements
12 = Related Governance Changes
Recommended