THE FINANCIAL ACTION TASK FORCE ON MONEY … · Commissioner’s Message “Hong Kong has been a member of the Financial Action Task Force on Money Laundering (FATF) since 1990 and

Contents

Commissioner’s Message P. 01

FATF Grows As More Fight Money Laundering P. 02

High Praise for Hong Kong’s Presidency P. 04

Review of The Forty Recommendations P. 07

Swift FATF Action Stifles Terrorists’ Funds P. 08

Chronology of Events P. 10

Annex 1 : FATF Members and Observers P. 23

Annex 2 : The Forty Recommendations P. 24

Annex 3 : The Eight Recommendations to Combat the P. 43 Financing of Terrorism

Commissioner’s Message

“Hong Kong has been a member of the Financial Action Task Force on Money Laundering (FATF) since 1990 and a founding member of the Asia/Pacific Group on Money Laundering. Our membership and leading role in FATF demonstrate our commitment to international cooperation in the fight against all forms of organised crime and terrorism,” said the Honourable Tung Chee-hwa, Chief Executive of the Hong Kong Special Administrative Region.

It was a signal honour for Hong Kong to take up the Presidency of the Financial Action Task Force on Money Laundering in 2001-02. It was a year which will never be forgotten, with the September 11 attacks in the U.S. shortly after the start of the thirteenth round of FATF, thereby creating tremendous pressure on all of its members to take swift and just action.

This commemorative booklet is more of a photo essay than a document to highlight significant events which occurred since Hong Kong was selected to head the FATF in October 2000. And from that time till June 2003, Hong Kong was also a member of the Steering Group-FATF’s think tank. It is a record for all to share the experiences that we had endured, particularly in those busy 12 months, burning the midnight oil with the resolve that money laundering and terrorism will be totally eradicated so our families and their families will have a safer place to live.

The responsibility of the Presidency of the FATF falls upon the entire framework of the selected government to take the lead in meeting FATF’s objectives. In Hong Kong’s case, the challenge was taken up by many departments and agencies, including the Narcotics Division of the Security Bureau, Financial Services and the Treasury Bureau, Department of Justice, Hong Kong Police, Customs and Excise Department, Hong Kong Monetary Authority, Securities and Futures Commission and Office of the Commissioner of Insurance. These formed the backbone to the multi-disciplined team which supported the Hong Kong Presidency.

Elsewhere in this booklet, we record the tributes paid to the Hong Kong Presidency during an exceptional year. If anything, the terrorist attacks in the U.S. unwittingly brought us all closer together creating a strong bond and a common goal to work. And together we have been. We would not have been able to achieve our goals and tasks without the closest cooperation of all FATF members, FATF-style regional bodies, international organisations and numerous individuals who have unselfishly devoted all their time and energy in this common cause.

It was an extreme honour to have been asked to chair the FATF and I thank everyone for the tremendous support afforded to me during the year and the tributes recorded here is a vote of thanks to all. Also, special recognition is due to the staff of the FATF Secretariat based in Paris, who worked tirelessly ensuring our timetables were met and remained on track in achieving our goals. Without their support we would not have been able to achieve the success attributed to Hong Kong, the first non-OECD jurisdiction taking up the Presidency.

Hong Kong is a tiny dot on the world map, but we have an importance as an international financial centre disproportionate to our size. We have always accepted the obligations that go with that role. The tragic events of September 11, and our Presidency of the FATF, have enabled us to demonstrate our total commitment to those obligations.

Mrs Clarie Lo, JP President of FATF 2001-02, and Member of FATF Steering Group (October 2000 - June 2003), Commissioner for Narcotics Hong Kong Special Administrative Region of the People’s Republic of China

June 2003

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FLaunderingFATF Grows As More Fight Money Laundering

ATF Grows As More Fight Money

Stalking the international criminal world is the Financia l Act ion Task Force on Money Laundering (FATF), a high level organisation with one mission: to stop the movement of dirty money crossing boundaries to finance the insidious activities of criminals and terrorism.

In response to mounting concern over money laundering and the threat it posed to the worldwide banking system and financial institutions, the G-7 Summit established the FATF at its Paris meeting in 1989. Initially it comprised of all G-7 States, the European Commission and eight other countries with the responsibility of monitoring money laundering techniques and trends, reviewing action undertaken at national and international levels, and setting out measures needed to combat money laundering. Within a year it established the framework of what has become known as the Forty Recommendations, a comprehensive blueprint of the action needed in the fight against money laundering.

Today, FATF’s network spans the globe, with 31 jurisdictions, two regional organisations and affiliate bodies (see Annex I) suffocating the movement of illicit funds, making it more difficult for organised crime and terrorist organisations to conduct their heinous business.

The FATF is bas ica l ly a pol icy-making organisation for its members to follow through annual self-assessment exercises and mutual evaluation processes through which they can cross-check their own legislation against the Forty Recommendations. In the mutual evaluation process, each member jurisdiction is examined in turn by the FATF on the basis of an on-site visit by a team of experts from the legal, financial and law enforcement fields from other members.

A small, but specialised Secretariat occupies space in the OECD headquarters in Paris to service FATF and assists the President, a high level government official appointed for a one year period from among FATF members. Countries which have held the Presidency are France (for the first two years),

Switzerland, Australia, the United Kingdom, the Netherlands, the United States, Italy, Belgium, Japan, Portugal, Spain and Hong Kong, China. The current President is Germany and the presidency will be succeeded by Sweden for one year starting July 2003.

2001-2002 was the first time Hong Kong presided over FATF; it was the first time a plenary meeting of FATF was held in a non-OECD jurisdiction; and the first time in FATF’s history that a special forum involving regional bodies and other members of the international community was held to discuss anti-terrorism measures.

At a reception to welcome participants to the special forum on January 31, 2002, Hong Kong’s Chief Executive, Mr. Tung Chee-hwa, said: “We have a deep interest in taking this role seriously, for we realize that if we are to move forward as a major international financial centre, our integrity in upholding the rule of law and maintaining a fair and open financial system we must be beyond reproach.”

And Hong Kong’s Ch ie f Sec re t a r y fo r Administration, Mr. Donald Tsang, added that Hong Kong, as a major international financial centre and arguably the world’s freest economy, must rely on the integrity of its financial system and its robust and comprehensive anti-money laundering regime.

He said although curbing illegal activities was a difficult task, the policies that FATF had developed and promoted to counter money laundering were beginning to frustrate the activities of criminals and their organisations.

Speaking at the opening of the Hong Kong Plenary meeting, he said: “Using Hong Kong as a small example, more than US$290 million in assets has either been restrained, confiscated or recovered in recent years. This is the direct result of action taken by our authorities under the Drug Trafficking and Organized and Serious Crimes legislation. And when our statutory framework

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FATF Grows As More Fight Money Laundering

is further strengthened, we expect to be able to cut off even more avenues for laundering money.”

At the close of Hong Kong’s presidency in June 2002, much had been achieved. A major priority was combating anti-terrorist funding in the wake of the September 11 attacks on the United States. New measures included the introduction of Eight Special Recommendations and the implementation of a Plan of Action to counter terrorist financing, including a self-assessment by all members on their anti-terrorist financing measures.

A voluntary self-assessment process for all other countries of the world was also launched on the same basis as applied to FATF members and the response from more than 50 non-members by then was seen as encouraging.

The Eight Special Recommendations were in addition to the existing FATF’s Forty Recommendations which have been accepted as the internationally recognised anti-money laundering standard. The FATF continued to focus on monitoring its members’ implementation of the Forty Recommendations on the basis of a self-assessment.

The 2001-2002 annual self-assessment exercise focused on the legal, financial and international measures relating to 28 FATF Recommendations which required specific action. Twelve members, including Ho n g Ko n g , h a d i m p l e m e n t e d a l l o f t h e recommendations, six others had fallen short of full compliance by only one recommendation, and more than three quarters of members had implemented at least 24 of the recommendations.

Cooperation with international organisations was marked by reinforced collaboration with the IMF and World Bank to deve lop an internat iona l methodology to assess anti-money laundering and counter-terrorist financing measures. FATF also established a working group to identify countries that lacked appropriate measures to counter terrorist financing for follow-up assessment with technical assistance from the international financial institutions and the United Nations.

Launched by FATF in 2000, the goal of the Non-Cooperative Countries or Territories (NCCTs) initiative is to reduce the vulnerability of the financial system by ensuring that all financial centres adopt and implement measures for the prevention, detention and punishment of money laundering activities according to internationally recognised standards.

During Hong Kong’s Presidency, Hungary, Israel, Lebanon and St. Kitts and Nevis were removed from the NCCT list in the fight against money laundering, while further progress was being made by the 15 jurisdictions remaining on the list.

In line with the FATF’s policy for strategic expansion of its membership and on the basis of a substantial political commitment, the plenary meeting of the FATF in Paris in June 2002, the last one under Hong Kong’s presidency, decided to invite South Africa to join the FATF as an observer while the African Development Bank and the Egmont Group of Financial Intelligence were also granted observer status.

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High Praise for Hong Kong’s PresidencyHigh Praise for Hong Kong’s Presidency

The long hours of work devoted by the President, the FATF Secretariat and members during Hong Kong’s presidency had not gone unnoticed. There were an exceptional number of plenary sessions, preparation of reports and lobbying activities involved to encompass FATF’s new extended mandate in a very short time frame. In speeches, reports, letters and e-mails, tribulations came from around the world expressing gratitude for the speed and professionalism in which thebusiness of the year was conducted.

The lead came from the U.S. Attorney General, Mr. John Ashcroft, who personally thanked the Chief Secretary of Administration, Mr. Donald Tsang; the Secretary for Justice, Miss Elsie Leung; the Secretary for Security, Mrs. Regina Ip; and Mrs. Clarie Lo, (President of FATF), and expressed the appreciation of the United States for their continued leadership in the fight against terrorism, and in the fight to curtail terrorist financing.

“Under that leadership, FATF improved its cooperation with the international development banks, including the IMF and the World Bank. The Task Force also made strides in enhancing cooperation with the United Nations and other international organisations. It is impossible to over-emphasise the importance of the decisive actions of the Task Force to cut off terrorist funding,” said Mr. Ashcroft when he addressed the American Chamber of Commerce/Asia Society in Hong Kong on October 25, 2002.

His words were echoed by the U.S. Consul General in Hong Kong, Mr. James Keith, who added: “Hong Kong’s significant contribution to eradicating the financing of terrorist networks is something the people of Hong Kong should be proud of. It is

something the United States is grateful for, and it is something that the international community can build upon.”

At an International Memorial for Peace in September 2002, Mr. Keith said that under Hong Kong’s chairmanship the FATF had made a tremendous start on the long term effort to deny funding to terrorists. “Hong Kong’s anti-terrorist financing law, passed in July (2002), was designed to meet new international mandated standards aimed at preventing terrorist use of the global financial system.”

As President of FATF, Mrs. Lo has received letters of support from every corner of the globe:

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“It has been a real pleasure to work with you duringyour presidency. You and your team have done anexcellent job in a crucial cross-roads for the FATF, itsnew mission, etc.” - Juan Antonio Aliaga, Head ofSpanish delegation to FATF, Ministry of Economyand Finance, Spain.

“I would like to thank Hong Kong, China, and youpersonally for the invaluable contribution you have madeto the work of the FATF over the past year. I welcomethe progress FATF has made through its closecollaboration with other multinational institutions,particularly the IMF and the World Bank, to ensure thestrengthening of financial systems across the world.” Gordon Brown, Chancellor of the Exchequer, U.K.

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High Praise for Hong Kong’s Presidency

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“It was a pleasure to have you here in Germany and to have the privilege to listen to your speech during the Berlin Conference.” - Dr. Heinz Buhler, Director General, German Foundation for International Development, Germany.

“I will like to take this opportunity to commend you and the FATF on the timely response in addressing terrorist financing.” - Chris Ellison, Minister for Justice and Customs, Australia.

“Austria highly values the important work of FATF and I personally appreciate the commitment and the excellent chairmanship that Hong Kong is providing for all us FATF members in this particularly challenging moment. ” - Karl Heinz Grasser, Federal Minister of Finance, Austria.

“I congratulate you on the success of the Extraordinary Plenary of FATF to combat terrorist funding. The United States was proud to host this important meeting and we were pleased that Secretary O’Neill was able to deliver the opening address.” - Jimmy Gurule, Under Secretary (Enforcement), Department of the Treasury, U.S.A.

“In the aftermath of the terrible events in the USA on September 11, 2001, the FATF’s task became even more demanding. We thought that you, and your colleagues, responded superbly to the challenge. I know how hard, and tirelessly, you all worked; and to such good effect. You did a terrific job in the FATF chair. - Sir James Hodge, British Consul General, Hong Kong.

“ I will like to express my appreciation for your important contribution to the success of the OECD Forum 2002. I am delighted that the FATF could join forces with the OECD in putting together this panel.” - Donald Johnston, Secretary General, OECD.

“Your commitment and dedication has been instrumental in reaching the very positive outcomes realized, on the three priorities of the NCCT exercise, the extension of the FATF remit to the fight against the financing of terrorism and the revision of the FATF Forty Recommendations. The progress made in the relationship with China, which directly results from your personal involvement on this matter, is also a key result of your tenure.” - Jean Pierre Jouyet, Director of the Treasury, France.

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“On behalf of the Brazilian delegation, I am sure to say that, under your presidency, the FATF has effectively implemented the actions and has carried out the works, which your mandate was supposed to do, even taking into consideration mainly the hard period of time we have lived through since the day of September 11, 2001” - Adrienne Giannetti Nelson de Senna, President ofCouncil for Financial Activities Control (COAF),Brazil and Chair of FATF American Ad Hoc Groupon Americas.

“I wish to pay tribute to the way you were quick to adjust the FATF programme in the wake of the unforeseen events of 11 September to bolster efforts against terrorist financing. Under your able leadership, the FATF not only met many new challenges but also made significant progress on the review of the Forty Recommendations.” - Ronald K. Noble, Secretary General, Interpol andPresident of the FATF (1996-97).

“Your contribution to the [IMFC] Deputies meeting and the progress report you provided on the work of the Financial Action Task Force will be a very valuable addition to the preparations of the Executive Board and the joint IMF/World Bank report to the IMFC and the Development Committee,” - Gus O’Donnell, Head of Government Economic Services,H.M. Treasury, U.K.

“I have appreciated both the interest you have shown in the work of the Offshore Group of Banking Supervisors, and the support you have given to the Group through your year of office. Your calmness and courtesy have been a great example to all who follow you in the Presidential chair.” - Colin Powell, Chairman, Offshore Group of Banking Supervisors, Channel Islands.

“Hong Kong, and indeed you personally, has done an excellent job in the Presidency of the Financial Action Task Force. You and your colleagues have well earned the respect and admiration, during very difficult times, of everyone around the world.” - Prof. Barry A.K. Rider, Jesus College, Cambridge, U.K.

“May I express how highly we all appreciate the efforts made by you personally and by your secretariat. They are indeed the primary force driving the FATF to fulfill its leading role in the international endeavour to combat against terrorist financing.” - Makiko Tanaka, Minister of Foreign Affairs, Japan.

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High Praise for Hong Kong’s Presidency

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“Hong Kong has the Presidency of the Financial ActionTask Force (FATF) for the period from July 2001 toJune 2002. The FATF was set up by the G7 in 1989 topromote policies to combat money laundering. HongKong has built up a robust and comprehensive anti-money laundering regime through legislation,enforcement and close liaison with the financial sector.The tragic events of September 2001 put the fight againstmoney laundering at the forefront of internationalattention and Hong Kong has made a particular effort tocontinue improving its anti-money-laundering regime.”- Commission of the European Communities, Reportfrom the Commission to the Council and theEuropean Parliament, Hong Kong SpecialAdministrative Region: Fourth Annual Report - 2001.

“Internationally, Hong Kong played a key role in leadingthe 29-member Financial Action Task Force (FATF) toadopt stringent anti-terrorism measures in the wake ofSeptember 11.” - U.S. State Department, U.S. - HongKong Policy Act Report, March 2002.

“Hong Kong continued to play a constructive role inglobal efforts against terrorism in its capacity as Presidentof the OECD’s anti-money laundering body, theFinancial Action Task Force (FATF). Plenary sessionsof the FATF were held in Hong Kong in January and inParis in June.” - U.K. Secretary of State for Foreignand Common Affairs, Six-monthly Report in HongKong, January-June 2002, July 2002.

“Hong Kong’s autonomy as an international economicactor remained intact as it participated as a full memberof numerous international economic organisations,independent of China, such as the World TradeOrganization, the Asia Pacific Economic Cooperationforum, and the Financial Action Task Force.”“Hong Kong played an important leadership role in theanti-terrorism finance effort as the President of the FATFand then as a FATF Steering Committee member.” - U.S.State Department, U.S. - Hong Kong Policy ActReport, April 2003.

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Review of The Forty Recommendations

Much of the work of the Financial Action Tack Force on Money Laundering hinges on the Forty Recommendations, originally drawn up in 1990 and subsequently updated in 1996.

These Recommendations set out the basic framework for anti-money laundering efforts and are designed to be of universal application. They cover the criminal justice system and law enforcement; the financial system and its regulation; and international cooperation.

In October 2000, FATF decided to begin a comprehensive review of the Forty Recommendations, which was actively pursued during the Hong Kong Presidency by three FATF specialised working groups to examine:

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The key components of anti-money laundering regimes including customer identification and due diligence,suspicious transaction reporting, and regulation andsupervision of institutions;

Corporate vehicles - companies, trusts, foundations etc. in a bid to identify their ultimate beneficial owners;and

Non-financial businesses and professions, which couldbe used to launder criminal funds. These includecasinos and other gambling businesses, dealers in realestate and other high value items, company and trustservice providers, lawyers, notaries, accountingprofessionals and investment advisors.

At the end of May 2002, FATF released a public consultation document which detailed these issues and proposed various options for dealing with them. The outcome of this exercise, which was extended beyond FATF members to include other FATF-style regional bodies, international organisations, non-FATF countries and the private sector, was discussed at the plenary meeting in Paris in May 2003. Revised set of Forty Recommendations (Annex II) was endorsed by the plenary meeting in Berlin in June 2003.

It was recognised from the outset of the FATF that because countries have diverse legal and financial systems, all cannot take identical measures. The Recommendations are therefore the principles for action in this field, for countries to implement according to their particular circumstances and constitutional frameworks, thus allowing a measure of flexibility rather than prescribing every detail. The measures are not particularly complex or difficult, provided there is the political will to act. Nor do they compromise the freedom to engage in legitimate transactions or threaten economic development.

FATF members are clearly committed to accept the discipline of being subjected to multilateral surveillance and peer review. All member jurisdictions have their implementation of the Forty Recommendations monitored through a two-pronged approach: an annual self-assessment exercise and the more detailed mutual evaluation process under which each member is subject to an on-site examination. In addition, the FATF carries out cross-country reviews of measures taken to implement particular Recommendations.

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Swift FATF Action Stifles Terrorists’FundsSwift FATF Action Stifles TerroristsFunds

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Hong Kong’s Presidency of FATF had just begun when terrorists attacked the World Trade Centre in New York, the Pentagon in Washington and a commercial a ircraft in Pennsylvania on September 11, 2001, sending a chill throughout the world, exposing every man, woman and child to the vulnerability of terrorism.

There were international calls for action and not a moment could be lost. Besides countering terrorists a t tacks , s tepping up sur ve i l lance on terror i s t organisations and increasing international cooperation, action was needed to stifle the flow of money financing terrorist operations.

FATF President, Mrs. Clarie Lo, with assistance from the FATF Secretariat and the U.S. Government, immediately called an extraordinary plenary session of FATF in Washington D.C. on October 29 and 30, 2001. It was well attended by more than 240 representatives of the FATF members, FATF-style regional bodies and observer organisations. And at the end of the hectic two-day session, FATF not only came up with eight recommendations to stifle the flow of money to aid terrorists, but also an action plan to implement the recommendations.

“We are here,” said Mrs. Lo at the opening session, “to draw up our own action plan of attack on terrorist financing. Our mission is to strangle and cut the supply of money and assets that is the lifeblood of terrorists.”

Mrs. Lo said terrorists and the organisations they supported had proved to be all too adept at moving money, evading rules, breaking laws and slipping through the existing security cordons of the international financial system.

“Our tasks at hand range from tackling advances in information technology where a click of a computer can send millions of dollars whizzing around the world, to basic, rudimentary alternative remittance systems,” she told delegates.

U.S. Treasury Secretary, Mr. Paul O’Neill followed-up: “Financing terrorism is an abuse of the internat ional system and i s repugnant to the international community. Terrorism is a deliberate intent to cause senseless injury and death, to intimidate populations, and to cause governments to act from fear. We must make every effort to eradicate this menace.”

He said that more than 150 countries had expressed their support in the fight against terrorist financing since the tragic events of September 11 and more than 80 countries had blocking orders in place to freeze terrorist assets.

FATF Mandate Expanded

At the extraordinary Washington meeting, FATF expanded its mission beyond money laundering and now also focuses its energies and expertise on the worldwide effort to combat terrorist financing.

In closing the meeting, Mrs. Lo said: “Today, the FATF has issued new international standards to combat terrorist financing. Implementation of these Special Recommendations will deny terrorists and their supporters access to the international financial system.”

The Eight Special Recommendations (details at Annex III) commit FATF members to:

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Take immediate steps to ratify and implement the relevant United Nations instruments;

Criminalise the financing of terrorism, terrorists acts and terrorist organisations;

Freeze and confiscate terrorist assets;

Report suspicious transactions linked to terrorism;

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Swift FATF Action Stifles Terrorists’ Funds

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Provide the widest possible range of assistance to thelaw enforcement and regulatory authorities of othercountries for terrorist financing investigations;

Impose anti-money laundering requirements onalternative remittance systems;

Strengthen customers identification measures ininternational and domestic wire transfers; and

Ensure entities, particularly non-profit organisations,cannot be misused to finance terrorism.

The agenda for the Washington meeting was a full one, even though the previous plenary session in Paris - the first chaired by Mrs. Lo under the Hong Kong Presidency - was only held in the previous month in September.

Plan of Action

Once the Recommendations were agreed, swift and effective implementation was required through a comprehensive Plan of Action.

Membe r s immed i a t e l y i d en t i f i e d t h e methodologies used by terrorist financiers by studying relevant cases at a FATF Typologies meeting in Wellington, New Zealand in November 2001. Some 24 case examples, covering issues from credit card fraud supporting terrorist networks, correspondent banking fraud, concealment by private banks and how bearer shares serve as an obstacle to investigations to coordinated laundering activities by organised crime, were studied in detail by law enforcement agencies from around the world.

And one month later, FATF members had conducted a self-assessment on themselves against the Special Recommendations. Other countries were also invited to undertake the assessment under the same FATF terms.

In April 2002, FATF had assisted financial institutions and other vulnerable entities worldwide in detecting and reporting terrorist financing through the existing anti-money laundering channels by issuing refined guidelines on the methods and investigation techniques on terrorist financing. The guidelines also

covered what types of financial activities constituted potential indicators of terrorist financing.

FATF initiated a process in June 2002 of identifying jurisdictions which lacked appropriate measures to combat financing terrorists for follow-up assessment and/or technical assistance by international organisations.

In taking forward its Plan of Action, FATF intensified its own cooperation with FATF-style regional bodies and international organisations which support and contribute to the international effort in combating money laundering and terrorist financing, including the IMF/World Bank, the United Nations Security Council Counter-Terrorism Committee (UNSC CTC), the Egmont Group of Financial Intelligence Units, the G20 Finance Ministers and Central Bank Governors and the Financial Stability Forum.

FATF also agreed to take into account the Special R e c o m m e n d a t i o n s a s i t r e v i s e d i t s Fo r t y Recommendations and intensified its work in relation to corporate vehicles , correspondent banking, identification of beneficial owners of accounts and regulation of non-banking financial institutions.

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Chronology of Events 2000-2003

2001-2002 was the year that was, punctuated by the untimely and devastating effects of the September 11 attacks in the United States. It was a busy year to change the course of destiny to ensure that every possible step must be taken to prevent history from repeating itself.

During Hong Kong’s Presidency of FATF, coordinated and chaired by Mrs. Clarie Lo, an exceptional number of five plenary meetings were held - two in Paris, one in Washington D.C., one in Hong Kong, and one in Rome. Added to these were numerous seminars, forums and meetings with the international community to maintain the initiatives derived from the FATF assemblies.

Major events attended by Mrs. Lo, from the time Hong Kong was selected to take the lead role, include :

First Plenary Meeting of FATF-XII in Madrid, Spain ( October 4-6, 2000 )

Hong Kong was selected as President for 2001/02 at this meeting and joined the steering group.

FATF Typologies Meeting in Oslo, Norway ( December 6-7, 2000 )

Second Plenary Meeting of FATF-XII in Paris, France ( January 31 - February 2, 2001)

Joint Meeting of the FATF and the Organisation of Economic Cooperation and Development (OECD) Committee on Fiscal Affairs in Paris, France (March 9, 2001)

Mrs. Clarie Lo presided at this meeting in her capacity as President-elect of the FATF

Third Plenary Meeting of FATF - XII in Paris, France ( June 20-22, 2001 )

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Chronology of Events

Hong Kong’s Presidency

FATF/IMF Liaison Meeting in Washington D.C., U.S.A. (July 26, 2001)

Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) Annual and Ministerial Meetings in Windhoek, Namibia (August 20-22, 2001)

Mrs. Clarie Lo meeting with the Minister of Finance of the Government of the Republic of Namibia, Hon Nangolo Mbumba.

The Commissioner for Narcotics, Mrs. Clarie Lo (third from right, front row), in her capacity as President of the FATF, attending the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG)Task Force and Ministerial Council Meeting held in Windhoek, Namibia to enhance the cooperation between ESAAMLG and the FATF in the fight against money laundering.

First Plenary Meeting of FATF-XIII in Paris, France (September 5-7, 2001)

The plenary meeting in Paris discussed and agreed on the programme of work for the FATF under Hong Kong’s Presidency, which included reviewing the FATF Forty Recommendations; monitoring progress on the Non-cooperative Countries and Territories Exercise (NCCTs); spreading the message of anti-money laundering to non-FATF members; and developing a Report on the Observance of Standards and Codes module with IMF and the World Bank to evaluate regimes against money laundering.

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A delegation of Hong Kong experts, led by the FATF President and Commissioner for Narcotics, Mrs. Clarie Lo (first row, third from left), attending the Plenary meeting held in Paris.

The then Secretary for Security, Mrs. Regina Ip (right) making an opening remark at the Plenary meeting in Paris chaired by the Commissioner for Narcotics, Mrs. Clarie Lo (left) in her capacity as President of the FATF.

The 19th International Symposium on Economic Crime, Cambridge, U.K. (September 9-16, 2001)

Caribbean Financial Action Task Force(CFATF) Annual and Ministerial Meetings in Santo Domingo, Dominican Republic (October 9-11, 2001)

The Commissioner for Narcotics, Mrs. Clarie Lo, in her capacity as President of the FATF, attending the Annual and Ministerial Meetings of the Caribbean Financial Action Task Force (CFATF) held in Santo Domingo, Dominican Republic to strengthen the cooperation between CFATF and the FATF.

Annual and Ministerial Meetings of the Caribbean Financial Action Task Force.

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Heads of National Law Enforcement Agencies (HONLEA) meeting in Sydney, Australia (October 15-18, 2001)

FATF Extraordinary Plenary Meeting in Washington D.C., U.S.A. (October 29-30, 2001)

The extraordinary plenary meeting in Washington D.C. in the wake of the September 11 terrorist attacks in the U.S., decided that the FATF should expand its mandate to include terrorist f inancing. Other achievements included the establishment of new international standards for combating terrorist financing - the Eight Special Recommendations - and a plan of action to engage members and non-members.

Mrs. Clarie Lo meeting with the then U.S. Treasury Secretary, Mr. Paul O’Neill, after presiding at the FATF Extraordinary Plenary meeting on terrorist financing.

Mrs. Clarie Lo (left) meeting with the Under Secretary for Enforcement of the U.S. Department of Treasury, Mr. Jimmy Gurule (right), at a reception hosted by the Hong Kong Commissioner for Economic and Trade Affairs, United States, Miss Jacqueline Ann Willis (centre), for the FATF delegates after the Extraordinary Plenary meeting in

Mrs. Clarie Lo delivering a speech at the reception for FATF delegates.

The Commissioner for Narcotics, Mrs. Clarie Lo, in her capacity as the President of FATF, and the then Secretary for Treasury, Mr. Paul O’Neill, addressing the FATF Extraordinary Plenary meeting on terrorist financing held in Washington D.C.

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The United Nations International Dialogue on Financial Sector Reforms in Response to Globalisation in Berlin, Germany (November 1-2, 2001)

FATF Typologies meeting in Wellington, New Zealand (November 19-20, 2001)

The meeting discussed the latest trend of money laundering, including the types of terrorist financing.

South American Financial Action Task Force (GAFISUD) Annual Meeting in Santiago, Chile (December 4-6, 2001)

Meeting of the Committee of Ministers of the Council of Europe in Strasbourg, France (December 12, 2001)

Plenary Meeting of Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (PC-R-EV) in Strasbourg, France (December 12, 2001)

Plenary Meeting of the Multidisciplinary Group on International Action Against Terrorism (GMT) of the Council of Europe in Strasbourg, France (December 12, 2001)

Second Plenary Meeting of FATF - XIII in Hong Kong (January 29-February 1, 2002)

The FATF hosted its plenary meeting in Hong Kong for the first time. One of the key objectives was to step up international efforts in the fight against money laundering and terrorist financing. On February 1, 2002, the FATF held a Special Forum on Terrorist Financing at the close of the plenary meeting in Hong Kong, which was attended by some 60 jurisdictions from the FATF and the FATF-s ty l e reg iona l bod ie s . Nine international organisations, including the United Nations, IMF and the World Bank, also attended the forum.

The Chief Executive, Mr. Tung Chee-hwa, addressing the guests at a special reception of the FATF Plenary meeting and a Special Forum on Terrorist Financing.

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The Chief Secretary for Administration, Mr. Donald Tsang (centre), officiating at the opening of the FATF Plenary meeting at the Hong Kong Convention and Exhibition Centre.

The Secretary for Justice, Ms. Elsie Leung (above), and the then Financial Secretary, Mr. Antony Leung (below), welcoming the FATF delegates at a FATF reception.

The Chief Executive, Mr. Tung Chee-hwa (third from left), meeting with the Minister of Finance of the Government of the Republic of Namibia, Mr. Nangolo Nbumbia, at a special reception of the FATF Plenary meeting and a Special Forum on Terrorist Financing held in Hong Kong.

Mr. Tung Chee-hwa (centre), joined by the then Secretary for Security, Mrs. Regina Ip (left), and the Commissioner for Narcotics and FATF President, Mrs. Clarie Lo (right), proposing a toast to the guests at the special reception.

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The President of the FATF and Commissioner for Narcotics, Mrs. Clarie Lo (centre), Chairman of the FATF XIII Typologies Meeting and New Zealand Police National Crime Manager, Mr. Bill Bishop (left), and FATF Executive Secretary, Mr. Patrick Moulette (right), holding a press conference after the FATF Plenary meeting and the Special Forum on Terrorist Financing on February 1, 2002.

The President of the FATF and Commissioner for Narcotics, Mrs. Clarie Lo, giving an opening address at the FATF Special Forum on Terrorist Financing. The then US Consul General, Mr. Michael Klosson (left), also addressed the Forum.

The United Nations Security Council Counter-terrorism Committee (UNSCCTC) in New York, U.S.A. (February 19, 2002)

The FATF President and the Commissioner for Narcotics, Mrs. Clarie Lo, meeting with the former U.S. Secretary of the Treasury, now the chairman of the executive committee of Citigroup, Mr. Robert Rubin, during her meetings with the private sector on anti-money laundering issues in New York.

The Seventh Annual International Money Laundering Conference in Miami, U.S.A. (February 21-22, 2002)

The FATF President and Commissioner for Narcotics, Mrs. Clarie Lo, delivering a speech at the seventh annual International Money Laundering Conference, which was attended by more than 800 anti-money laundering experts.

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The Financial Stability Forum in Hong Kong (March 26, 2002)

The International Monetary and Financial Committee (IMFC) in London, U.K. (April 11-12, 2002)

Roundtable discussion with leading private sector experts and regulators was chaired by the U.K. Chancellor of the Exchequer, Mr. Gordon Brown, attended also by the then U.S. Treasury Secretary, Mr. Paul O’Neill on April 12.

The Commissioner for Narcotics, Mrs. Clarie Lo (centre), in her capacity as President of the FATF, meeting with the U.K. Chancellor of the Exchequer, Mr. Gordon Brown (left), and the then U.S. Treasury Secretary, Mr. Paul O’Neill (right), in London to exchange views on the role of the private sector in the fight against terrorist financing.

Clarie Lo (first from left), Mr. Gordon Brown (first from right), and Mr. Paul O’Neill (second from right), attending a roundtable meeting on the fight against terrorist financing held in Downing Street, London.

Mrs.

FATF Special Plenary Meeting in Rome, Italy (May 7-8, 2002)

The plenary meeting in Rome discussed and agreed on a 128-page public consultation document on the Review of the FATF Forty Recommendations. The paper covered a range of issues, including customer identification, suspicious transaction reporting, beneficial ownership and control of corporate vehicles, and the application of anti-money laundering obligations to non-financial businesses and profession, to be considered in the Review and provided options for dealing with the risks or proposals that were raised.

A delegation of Hong Kong experts, led by the FATF President and Commissioner for Narcotics, Mrs. Clarie Lo (centre), attending the Special Plenary meeting held in Rome.

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OECD Forum 2002 in Paris, France (May 14, 2002)

Mrs. Lo chaired a panel session on “Combating of the Financing of Terrorists” held at the forum.

The Commissioner for Narcotics, Mrs. Clarie Lo (right), in her capacity as President of the FATF, chairing a panel session on the “Combating of the Financing of Terrorists” held on May 14 at the OECD Forum 2002. Panelists at the session included Secretary-General of Interpol, Mr. Ronald K. Noble (second from right); Minister of Foreign Trade of Columbia, Ms. Angela Orozco (second from left); and Secretary-General of Societe Generale of France, Mr. Christian Schricke (left).

FATF Mission to Cape Town, South Africa (May 16-17,2002)

A FATF mission led by the FATF President and Commissioner for Narcotics, Mrs. Clarie Lo (third from right), visiting Cape Town in South Africa to discuss South Africa’s admission to the FATF membership.

FATF Mission to Beijing, China (May 23, 2002)

A FATF mission led by the FATF President and Commissioner for Narcotics, Mrs. Clarie Lo, meeting with the People’s Bank of China to discuss about Mainland’s anti-money laundering measures.

Fifth Annual Meeting Asia/Pacific Group on Money Laundering in Brisbane, Australia (June 4-7, 2002)

The Commissioner for Narcotics, Mrs. Clarie Lo, in her capacity as the President of FATF, attending the Fifth Annual Meeting of Asia/ Pacific Group on Money Laundering held in Brisbane, Australia.

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Meeting with H.E. Sultan Bin Nasser Al Suwaidi, Governor, UAE Central Bank and the National Anti-money Laundering Committee in Abu Dhabi UAE (June 10, 2002)

The Commissioner for Narcotics, Mrs. Clarie Lo, in her capacity as President of the FATF, meeting with the National Anti-Money Laundering Committee of the United Arab Emirates.

Organisation for Security and Co-operation in Europe (OSCE) High Level Conference on Preventing and Combating Terrorism in Lisbon, Portugal (June 12, 2002)

Meeting with Mr. Andrew Crockett, Chairman, Financial Stability Forman in Basel, Switzerland (June 14, 2002)

Third Plenary Meeting of FATF- XIII in Paris, France (June 18-21, 2002)

The list of Non-cooperative Countries and Territories (NCCTs) was updated with the deletion of four, reducing the list to 15 countries/territories. The annual self-assessment exercise on the implementation of anti-money laundering measures by FATF members as well as members’ compliance against the Eight Special Recommendations to counter the financing of terrorism were discussed and made public. This was also the last plenary meeting under the Presidency of Hong Kong.

The President of the FATF and Commissioner for Narcotics, Mrs. Clarie Lo (centre), the 2002/2003 FATF President, Mr. Jochen Sanio of Germany (left), and FATF Executive Secretary, Mr. Patrick Moulette (right), speaking at a press conference held at the close of the FATF Plenary meeting in Paris.

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Beyond Hong Kong’s Presidency

Active participation in the FATF is an ongoing commitment and Hong Kong, as an former president and a member of the 7-person steering group, continued to give full support to the new German Presidency with Mrs. Lo (as Hong Kong’s representative) attending the following sessions:

Meeting with International Bank Regulatory Compliance Committee (IBRCC) in New York, U.S.A. (December 12, 2002)

International Policy Dialogue “Tackling Cross Border Crime” by the Development Policy Forum of InWest (Capacity Building International) in Bonn, Germany (December 16-17, 2002)

Second Plenary Meeting of FATF-XIV in Paris, France (February 11-14, 2003)

FATF Delegation to Manila, the Philippines (March 4, 2003)

The delegation discussed with the Philippines’ legislature amendments to the Philippines’ anti-money laundering law.

FATF/China Joint Seminar in Beijing, China (March 27-28, 2003)

The Commissioner for Narcotics, Mrs.Clarie Lo, attending the FATF/China Joint Seminar held in Beijing in March 2003.

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National Press Club, Washington D.C., U.S.A. (June 13, 2003)

Mrs. Lo del ivered a presentation “Money Laundering and Terrorist Financing: the Hong Kong Perspective”.

The Commissioner for Narcotics, Mrs. Clarie Lo, delivering a speech on Hong Kong’s experience in countering money laundering and terrorist financing at the National Press Club during her official visit to Washington, D.C. in June 2003.

The Commissioner for Narcotics, Mrs. Clarie Lo, at an official visit to Washington, D.C. in June 2003, receiving a cheque of about US $2.9 million from the U.S. Department of Justice. The occassion signifies the sharing of confiscated assets resulting from the cooperation between HKSAR and U.S. Governments in cracking the Claude Duboc case.

Third Plenary Meeting of FATF-XIV in Berlin, Germany (June 18-20, 2003)

The Commissioner for Narcotics, Mrs. Clarie Lo, and the 2002/03 FATF President, Mr Jochen Sanio of Germany (fourth from left), welcoming the South African delegates following formal admission of South Africa as a member of FATF at the plenary meeting held in Berlin in June 2003.

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The Commissioner for Narcotics, Mrs. Clarie Lo, welcoming the Chairman of the Russian Moitoring Committee and Ministry of Finance of the Russian Federation, Mr. Viktor Zubkov, after formal admission of the Russian Federation as a FATF member at the plenary meeting held in Berlin in June 2003.

The Hong Kong delegation attending the FATF plenary meeting held in Berlin on 18-20 June 2003.

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Annex I

FATF Members and Observers

The FATF membership comprised Argentina, Australia, Austria, Belgium, Brazil, Canada, Denmark, European Commission, Finland, France, Germany, Greece, Gulf Co-operation Council, Hong Kong China, Iceland, Ireland, Italy, Japan, Luxemburg, Mexico, the Kingdom of the Netherlands, New Zealand, Norway, Portugal, the Russian Federation, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, United Kingdom, and the United States.

Regional bodies and observer organisations include the Asia/Pacific Group on Money Laundering (APG), the Caribbean Financial Action Task Force (CFATF), the Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures of the Council of Europe (MoneyVal), the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), the South American Financial Action Task Force (GAFISUD), the Offshore Group of Banking Supervisors (OGBS), the Asian Development Bank, the Commonwealth Secretariat, the Egmont Group of Financial Intelligence Units, the Europol, the European Central Bank, the Inter-American Development Bank (IDB), the International Monetary Fund (IMF), Interpol, the International Organisation of Securities Commissions (IOSCO), the Organisation of American States/Inter-American Drug Abuse Control Commission (OAS/CICAD), the United Nations Office on Drug Control and Crime Prevention (UNODCCP), the World Bank, and the World Customs Organisation.

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The Forty RecommendationsAnnex II

The Forty Recommendations

INTRODUCTION

Money laundering methods and techniques change in response to developing counter-measures. In recent years,

1the Financial Action Task Force (FATF) has noted increasingly sophisticated combinations of techniques, such as the increased use of legal persons to disguise the true ownership and control of illegal proceeds, and an increased use of professionals to provide advice and assistance in laundering criminal funds. These factors, combined with the experience gained through the FATF’s Non-Cooperative Countries and Territories process, and a number of national and international initiatives, led the FATF to review and revise the Forty Recommendations into a new comprehensive framework for combating money laundering and terrorist financing. The FATF now calls upon all countries to take the necessary steps to bring their national systems for combating money laundering and terrorist financing into compliance with the new FATF Recommendations, and to effectively implement these measures.

The rev i ew proces s fo r rev i s ing the For ty Recommendations was an extensive one, open to FATF members, non-members, observers, financial and other affected sectors and interested parties. This consultation process provided a wide range of input, all of which was considered in the review process.

The revised Forty Recommendations now apply not only to money laundering but also to terrorist financing, and when combined with the Eight Special Recommendations on Terrorist Financing provide an enhanced, comprehensive and consistent framework of measures for combating money laundering and terrorist financing. The FATF recognises that countries have diverse legal and financial systems and so all cannot take identical measures to achieve the common ob jec t i ve , e spec i a l l y ove r mat t e r s o f de ta i l . The Recommendations therefore set minimum standards for action for countries to implement the detail according to their particular circumstances and constitutional frameworks. The Recommendations cover all the measures that national systems should have in place within their criminal justice

and regulatory systems; the preventive measures to be taken by financial institutions and certain other businesses and professions; and international cooperation.

The original FATF Forty Recommendations were drawn up in 1990 as an initiative to combat the misuse of financial systems by persons laundering drug money. In 1996 the Recommendations were revised for the first time to reflect evolving money laundering typologies. The 1996 Forty Recommendations have been endorsed by more than 130 countries and are the international anti-money laundering standard.

In October 2001 the FATF expanded its mandate to deal with the issue of the financing of terrorism, and took the impor tant s t ep o f c rea t ing the Eight Spec ia l Recommendat ions on Ter ror i s t Financ ing . These Recommendations contain a set of measures aimed at combating the funding of terrorist acts and terrorist organisations, and are complementary to the Forty

2Recommendations .

A key element in the fight against money laundering and the financing of terrorism is the need for countries systems to be monitored and evaluated, with respect to these international standards. The mutual evaluations conducted by the FATF and FATF-style regional bodies, as well as the assessments conducted by the IMF and World Bank, are a v i t a l m e c h a n i s m f o r e n s u r i n g t h a t t h e FAT F Recommendations are effectively implemented by all countries.

1 The FATF is an inter-governmental body which sets standards,

and develops and promotes policies to combat money laundering and terrorist financing. It currently has 33 members: 31 countries and governments and two international organisations; and more than 20 observers: five FATF-style regional bodies and more than 15 other international organisations or bodies. A list of all members and observers can be found on the FATF website at http://www.fatf-gafi.org/Members_en.htm

2 The FATF Forty and Eight Special Recommendations have been

recognised by the International Monetary Fund and the World Bank as the international standards for combating money laundering and the financing of terrorism.

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http://www.fatf-gafi.org/Members_en.htm


A. LEGAL SYSTEMS

Scope of the criminal offence of money laundering

1. Countries should criminalise money laundering on thebasis of the 1988 United Nations Convention againstIllicit Traffic in Narcotic Drugs and PsychotropicSubstances (the Vienna Convention) and the 2000United Nations Convention on TransnationalOrganized Crime (the Palermo Convention).

Countries should apply the crime of money laundering to all serious offences, with a view to including the widest range of predicate offences. Predicate offences may be described by reference to all offences, or to a threshold linked either to a category of serious offences or to the penalty of imprisonment applicable to the predicate offence (threshold approach), or to a list of predicate offences, or a combination of these approaches.

Where countries apply a threshold approach, predicate offences should at a minimum comprise all offences that fall within the category of serious offences under their national law or should include offences which are punishable by a maximum penalty of more than one year’s imprisonment or for those countries that have a minimum threshold for offences in their legal system, predicate offences should comprise all offences, which are punished by a minimum penalty of more than six months imprisonment.

Whichever approach is adopted, each country should at a minimum include a range of offences within each of the designated categories of offences3 .

Predicate offences for money laundering should extend to conduct that occurred in another country, which constitutes an offence in that country, and which would have constituted a predicate offence had it occurred domestically. Countries may provide that the only prerequisite is that the conduct would have constituted a predicate offence had it occurred domestically.

Countries may provide that the offence of money laundering does not apply to persons who committed the predicate offence, where this is required by fundamental principles of their domestic law.

Countries should ensure that:

2. a) The intent and knowledge required to prove the offence of money laundering is consistent with the standards set forth in the Vienna and Palermo Conventions, including the concept that such mental state may be inferred from objective factual circumstances.

b) Criminal liability, and, where that is not possible,civil or administrative liability, should apply to legalpersons. This should not preclude parallel criminal,civil or administrative proceedings with respect tolegal persons in countries in which such forms ofliability are available. Legal persons should be subject to effective, proportionate and dissuasive sanctions.Such measures should be without prejudice to thecriminal liability of individuals.

3 See the definition of “designated categories of offences”

in the Glossary.

Provisonal measures and confiscation

3. Countries should adopt measures similar to those setforth in the Vienna and Palermo Conventions,including legislative measures, to enable theircompetent authorities to confiscate propertylaundered, proceeds from money laundering orpredicate offences, instrumentalities used in orintended for use in the commission of these offences,or property of corresponding value, withoutprejudicing the rights of bona fide third parties.

Such measures should include the authority to: (a) identify, trace and evaluate property which is subject to confiscation; (b) carry out provisional measures, such as freezing and seizing, to prevent any dealing, transfer or disposal of such property; (c) take steps that will prevent or void actions that prejudice the State’s ability to recover property that is subject to confiscation; and (d) take any appropriate investigative measures.

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Countries may consider adopting measures that allow such proceeds or instrumentalities to be confiscated without requiring a criminal conviction, or which require an offender to demonstrate the lawful origin of the property alleged to be liable to confiscation, to the extent that such a requirement is consistent with the principles of their domestic law.

B . M E A S U R E S T O B E T A K E N B Y FINANCIAL INSTITUTIONS AND NONFINANCIAL BUSINESSES AND PROFESSIONS TO PREVENT MONEY LAUNDERING AND TERRORIST FINANCING

4. Countries should ensure that financial institutionsecrecy laws do not inhibit implementation of theFATF Recommendations.

Customer due diligence and record-keeping

5.* Financial institutions should not keep anonymous accounts or accounts in obviously fictitious names.

Financial institutions should undertake customer due diligence measures, including identifying and verifying the identity of their customers, when:

• •

•

•

establishing business relations;carrying out occasional transactions: (i) above theapplicable designated threshold; or (ii) that are wiretransfers in the circumstances covered by theInterpretative Note to Special RecommendationVII;there is a suspicion of money laundering or terroristfinancing; orthe financial institution has doubts about theveracity or adequacy of previously obtainedcustomer identification data.

The customer due diligence (CDD) measures to be taken are as follows:

a) Identifying the customer and verifying thatcustomer’s identity using reliable, independent

4source documents, data or information .

b) Identifying the beneficial owner, and takingreasonable measures to verify the identity of thebeneficial owner such that the financial institutionis satisfied that it knows who the beneficial owneris. For legal persons and arrangements this shouldinclude financial institutions taking reasonablemeasures to understand the ownership and controlstructure of the customer.

c) Obtaining information on the purpose and intended nature of the business relationship.

d) Conducting ongoing due diligence on the businessrelationship and scrutiny of transactions undertakenthroughout the course of that relationship to ensurethat the transactions being conducted are consistentwith the institution’s knowledge of the customer,their business and risk profile, including, wherenecessary, the source of funds.

Financial institutions should apply each of the CDD measures under (a) to (d) above, but may determine the extent of such measures on a risk sensitive basis depending on the type of customer, business relationship or transaction. The measures that are taken should be consistent with any guidelines issued by competent authorities. For higher risk categories, financial institutions should perform enhanced due diligence. In certain circumstances, where there are low risks, countries may decide that financial institutions can apply reduced or simplified measures.

4 Reliable, independent source documents, data or information

will hereafter be referred to as “indentification data”.

* Recommendations marked with an asterisk should be read inconjuction with their Interpretative Note.

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Financial institutions should verify the identity of the customer and beneficial owner before or during the course of establishing a business relationship or conducting transactions for occasional customers. Countries may permit financial institutions to complete the verification as soon as reasonably practicable following the establishment of the relationship, where the money laundering risks are effectively managed and where this is essential not to interrupt the normal conduct of business.

Where the financial institution is unable to comply with paragraphs (a) to (c) above, it should not open the account, commence business relations or perform the transaction; or should terminate the business relationship; and should consider making a suspicious transactions report in relation to the customer.

These requirements should apply to all new customers, though financial institutions should also apply this Recommendation to existing customers on the basis of materiality and risk, and should conduct due diligence on such existing relationships at appropriate times.

6.* Financial institutions should, in relation to politically exposed persons, in addition to performing normal due diligence measures:

a) Have appropriate risk management systems todetermine whether the customer is a politicallyexposed person.

b) Obtain senior management approval for establishing business relationships with such customers.

c) Take reasonable measures to establish the source ofwealth and source of funds.

d) Conduct enhanced ongoing monitoring of thebusiness relationship.

Financial institutions should, in relation to cross-border correspondent banking and other similar relationships, in addition to performing normal due diligence measures:

7.

a) Gather sufficient information about a respondentinstitution to understand fully the nature of therespondent’s business and to determine frompublicly available information the reputation of theinstitution and the quality of supervision, includingwhether it has been subject to a money launderingor terrorist financing investigation or regulatoryaction.

b) Assess the respondent institution’s anti-moneylaundering and terrorist financing controls.

c) Obtain approval from senior management beforeestablishing new correspondent relationships.

d) Document the respective responsibilities of eachinstitution.

e) With respect to “payable-through accounts”, besatisfied that the respondent bank has verified theidentity of and performed on-going due diligenceon the customers having direct access to accountsof the correspondent and that it is able to providerelevant customer identification data upon requestto the correspondent bank.

8. Financial institutions should pay special attention toany money laundering threats that may arise from newor developing technologies that might favouranonymity, and take measures, if needed, to preventtheir use in money laundering schemes. In particular,financial institutions should have policies andprocedures in place to address any specific risksassociated with non-face to face business relationshipsor transactions.

9.* Countries may permit financial institutions to rely on intermediaries or other third parties to perform elements (a) – (c) of the CDD process or to introduce business, provided that the criteria set out below are met. Where such reliance is permitted, the ultimate responsibility for customer identification and verification remains with the financial institution relying on the third party.

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The criteria that should be met are as follows:

a) A financial institution relying upon a third partyshould immediately obtain the necessaryinformation concerning elements (a) – (c) of theCDD process. Financial institutions should takeadequate steps to satisfy themselves that copies ofident i f i c a t ion da ta and o the r re l evantdocumentation relating to the CDD requirementswill be made available from the third party uponrequest without delay.

b) The financial institution should satisfy itself thatthe third party is regulated and supervised for, andhas measures in place to comply with CDDrequirements in line with Recommendations 5 and10.

It is left to each country to determine in which countries the third party that meets the conditions can be based, having regard to information available on countries that do not or do not adequately apply the FATF Recommendations.

10.*Financial institutions should maintain, for at least five years, all necessary records on transactions, both domestic or international, to enable them to comply swiftly with information requests from the competent authorities. Such records must be sufficient to permit reconstruction of individual transactions (including the amounts and types of currency involved if any) so as to provide, if necessary, evidence for prosecution of criminal activity.

Financial institutions should keep records on the identification data obtained through the customer due diligence process (e.g. copies or records of official identification documents like passports, identity cards, driving licenses or similar documents), account files and business correspondence for at least five years after the business relationship is ended.

The identification data and transaction records should be available to domestic competent authorities upon appropriate authority.

11.* Financial institutions should pay special attention to all complex, unusual large transactions, and all unusual patterns of transactions, which have no apparent economic or visible lawful purpose. The background and purpose of such transactions should, as far as possible, be examined, the findings established in writing, and be available to help competent authorities and auditors.

12.* The customer due diligence and record-keeping requirements set out in Recommendations 5, 6, and 8 to 11 apply to designated non-financial businesses and professions in the following situations:

a) Casinos – when customers engage in financialtransactions equal to or above the applicabledesignated threshold.

b) Real estate agents - when they are involved intransactions for their client concerning the buyingand selling of real estate.

c) Dealers in precious metals and dealers in preciousstones - when they engage in any cash transactionwith a customer equal to or above the applicabledesignated threshold.

d) Lawyers, notaries, other independent legalprofessionals and accountants when they preparefor or carry out transactions for their clientconcerning the following activities:

• •

•

•

•

buying and selling of real estate;managing of client money, securities orother assets;management of bank, savings or securitiesaccounts;organisation of contributions for thecreation, operation or management ofcompanies;creation, operation or management oflegal persons or arrangements, and buyingand selling of business entities.

e) Trust and company service providers when theyprepare for or carry out transactions for a clientconcerning the activities listed in the definition inthe Glossary.

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Reporting of suspicious transactions and compliance

13.* If a financial institution suspects or has reasonable grounds to suspect that funds are the proceeds of a criminal activity, or are related to terrorist financing, it should be required, directly by law or regulation, to report promptly its suspicions to the financial intelligence unit (FIU).

14.* Financial institutions, their directors, officers and employees should be:

a) Protected by legal provisions from criminal and civilliability for breach of any restriction on disclosureof information imposed by contract or by anylegislative, regulatory or administrative provision,if they report their suspicions in good faith to theFIU, even if they did not know precisely what theunderlying criminal activity was, and regardless ofwhether illegal activity actually occurred.

b) Prohibited by law from disclosing the fact that asuspicious transaction report (STR) or relatedinformation is being reported to the FIU.

15.* Financial institutions should develop programmes against money laundering and terrorist financing. These programmes should include:

a) The development of internal policies, proceduresand controls, including appropriate compliancemanagement arrangements, and adequate screeningprocedures to ensure high standards when hiringemployees.

b) An ongoing employee training programme.c) An audit function to test the system.

16.* The requirements set out in Recommendations 13 to 15, and 21 apply to all designated non-financial businesses and professions, subject to the following qualifications:

a) Lawyers, notaries, other independent legalprofessionals and accountants should be requiredto report suspicious transactions when, on behalfof or for a client, they engage in a financialtransaction in relation to the activities described inRecommendation 12(d). Countries are stronglyencouraged to extend the reporting requirement tothe rest of the professional activities of accountants,including auditing.

b) Dealers in precious metals and dealers in preciousstones should be required to report suspicioustransactions when they engage in any cashtransaction with a customer equal to or above theapplicable designated threshold.

c) Trust and company service providers should berequired to report suspicious transactions for a clientwhen, on behalf of or for a client, they engage in atransaction in relation to the activities referred toRecommendation 12(e).

Lawyers, notaries, other independent legal professionals, and accountants acting as independent legal professionals, are not required to report their suspicions if the relevant information was obtained in circumstances where they are subject to professional secrecy or legal professional privilege.

Other measures to deter money laundering and terrorist financing

17. Countries should ensure that effective, proportionateand dissuasive sanctions, whether criminal, civil oradministrative, are available to deal with natural orlegal persons covered by these Recommendations thatfail to comply with anti-money laundering or terroristfinancing requirements.

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18. Countries should not approve the establishment or accept the continued operation of shell banks. Financial institutions should refuse to enter into, or continue, a correspondent banking relationship with shell banks. Financial institutions should also guard against establishing relations with respondent foreign financial institutions that permit their accounts to be used by shell banks.

19.* Countries should consider:

a) Implementing feasible measures to detect ormonitor the physical cross-border transportation ofcurrency and bearer negotiable instruments, subjectto strict safeguards to ensure proper use ofinformation and without impeding in any way thefreedom of capital movements.

b) The feasibility and utility of a system where banksand other financial institutions and intermediarieswould report all domestic and international currencytransactions above a fixed amount, to a nationalcentral agency with a computerised data base,available to competent authorities for use in moneylaundering or terrorist financing cases, subject to strict safeguards to ensure proper use of the information.

20. Countries should consider applying the FATFRecommendations to businesses and professions, otherthan designated non-financial businesses andprofessions, that pose a money laundering or terroristfinancing risk.

Countries should further encourage the developmentof modern and secure techniques of money management that are less vulnerable to money laundering.

Measures to be taken with respect to countries that do not or insufficiently comply with the FATF Recommendations

21. Financial institutions should give special attention tobusiness relationships and transactions with persons,including companies and financial institutions, fromcountries which do not or insufficiently apply the FATF Recommendations. Whenever these transactions haveno apparent economic or visible lawful purpose, their

background and purpose should, as far as possible, be examined, the findings established in writing, and be available to help competent authorities. Where such a country continues not to apply or insufficiently applies the FATF Recommendations, countries should be able to apply appropriate countermeasures.

22. Financial institutions should ensure that the principlesapplicable to financial institutions, which arementioned above are also applied to branches andmajority owned subsidiaries located abroad, especiallyin countries which do not or insufficiently apply theFATF Recommendations, to the extent that localapplicable laws and regulations permit. When localapplicable laws and regulations prohibit thisimplementation, competent authorities in the countryof the parent institution should be informed by thefinancial institutions that they cannot apply the FATFRecommendations.

Regulation and supervision

23.* Countries should ensure that financial institutions are subject to adequate regulation and supervision and are effectively implementing the FATF Recommendations. Competent authorities should take the necessary legal or regulatory measures to prevent criminals or their associates from holding or being the beneficial owner of a significant or controlling interest or holding a management function in a financial institution.

For financial institutions subject to the Core Principles, the regulatory and supervisory measures that apply for prudential purposes and which are also relevant to money laundering, should apply in a similar manner for anti-money laundering and terrorist financing purposes.

Other financial institutions should be licensed or registered and appropriately regulated, and subject to supervision or oversight for anti-money laundering purposes, having regard to the risk of money laundering or terrorist financing in that sector. At a minimum, businesses providing a service of money or value transfer, or of money or currency changing should be licensed or registered, and subject to effective systems for monitoring and ensuring compliance with national requirements to combat money laundering and terrorist financing.

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24. Designated non-financial businesses and professionsshould be subject to regulatory and supervisorymeasures as set out below.

a) Casinos should be subject to a comprehensiveregulatory and supervisory regime that ensures thatthey have effectively implemented the necessaryanti-money laundering and terrorist-financingmeasures. At a minimum:

••

•

casinos should be licensed;competent authorities should take the necessarylegal or regulatory measures to prevent criminals or their associates from holding or being thebeneficial owner of a significant or controllinginterest, holding a management function in, orbeing an operator of a casinocompetent authorities should ensure that casinos are effectively supervised for compliance withrequirements to combat money laundering andterrorist financing.

b) Countries should ensure that the other categoriesof designated non-financial businesses andprofessions are subject to effective systems formonitoring and ensuring their compliance withrequirements to combat money laundering andterrorist financing. This should be performed on arisk-sensitive basis. This may be performed by agovernment authority or by an appropriate self-regulatory organisation, provided that such anorganisation can ensure that its members complywith their obligations to combat money launderingand terrorist financing.

25.* The competent authorities should establish guidelines, and provide feedback which will assist financial institutions and designated non-financial businesses and professions in applying national measures to combat money laundering and terrorist financing, and in particular, in detecting and reporting suspicious transactions.

C. I N S T I T U T I O N A L A N D O T H E R MEASURES NECESSARY IN SYSTEMS F O R C O M B A T I N G M O N E Y L A U N D E R I N G A N D T E R R O R I S TFINANCING

Competent authorities, their powers and resources

26.*Countries should establish a FIU that serves as a national centre for the receiving (and, as permitted, requesting), analysis and dissemination of STR and other information regarding potential money laundering or terrorist financing. The FIU should have access, directly or indirectly, on a timely basis to the financial, administrative and law enforcement information that it requires to properly undertake its functions, including the analysis of STR.

27.* Countries should ensure that designated law enforcement authorities have responsibility for money laundering and terrorist financing investigations. Countries are encouraged to support and develop, as far as possible, special investigative techniques suitable for the investigation of money laundering, such as controlled delivery, undercover operations and other relevant techniques. Countries are also encouraged to use other effective mechanisms such as the use of permanent or temporary groups specialised in asset investigation, and co-operative investigations with appropriate competent authorities in other countries.

28. When conducting investigations of money launderingand underlying predicate offences, competentauthorities should be able to obtain documents andinformation for use in those investigations, and inprosecutions and related actions. This should includepowers to use compulsory measures for the productionof records held by financial institutions and otherpersons, for the search of persons and premises, andfor the seizure and obtaining of evidence.

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29. Supervisors should have adequate powers to monitorand ensure compliance by financial institutions withrequirements to combat money laundering andterrorist financing, including the authority to conductinspections. They should be authorised to compelproduction of any information from financialinstitutions that is relevant to monitoring suchcompliance, and to impose adequate administrativesanctions for failure to comply with such requirements.

30. Countries should provide their competent authoritiesinvolved in combating money laundering and terroristfinancing with adequate financial, human andtechnical resources. Countries should have in placeprocesses to ensure that the staff of those authoritiesare of high integrity.

31. Countries should ensure that policy makers, the FIU,law enforcement and supervisors have effectivemechanisms in place which enable them to co-operate,and where appropriate co-ordinate domestically witheach other concerning the development andimplementation of policies and activities to combatmoney laundering and terrorist financing.

32. Countries should ensure that their competentauthorities can review the effectiveness of their systemsto combat money laundering and terrorist financingsystems by maintaining comprehensive statistics onmatters relevant to the effectiveness and efficiency ofsuch systems. This should include statistics on the STRreceived and disseminated; on money laundering andterrorist financing investigations, prosecutions andconvictions; on property frozen, seized and confiscated; and on mutual legal assistance or other internationalrequests for co-operation.

Transparency of legal persons and arrangements

33. Countries should take measures to prevent theunlawful use of legal persons by money launderers.Countries should ensure that there is adequate,accurate and timely information on the beneficialownership and control of legal persons that can beobtained or accessed in a timely fashion by competentauthorities. In particular, countries that have legal

persons that are able to issue bearer shares should take appropriate measures to ensure that they are not misused for money laundering and be able to demonstrate the adequacy of those measures. Countries could consider measures to facilitate access to beneficial ownership and control information to financial institutions undertaking the requirements set out in Recommendation 5.

34. Countries should take measures to prevent theunlawful use of legal arrangements by moneylaunderers. In particular, countries should ensure thatthere is adequate, accurate and timely information onexpress trusts, including information on the settlor,trustee and beneficiaries, that can be obtained oraccessed in a timely fashion by competent authorities.Countries could consider measures to facilitate accessto beneficial ownership and control information tofinancial institutions undertaking the requirements setout in Recommendation 5.

D. INTERNATIONAL CO-OPERATION

35. Countries should take immediate steps to becomeparty to and implement fully the Vienna Convention,the Palermo Convention, and the 1999 United Nations International Convention for the Suppression of theFinancing of Terrorism. Countries are also encouragedto ratify and implement other relevant internationalconventions, such as the 1990 Council of EuropeConvention on Laundering, Search, Seizure andConfiscation of the Proceeds from Crime and the 2002Inter-American Convention against Terrorism.

Mutual legal assistance and extradition

36. Countries should rapidly, constructively and effectivelyprovide the widest possible range of mutual legalassistance in relation to money laundering and terroristfinancing investigations, prosecutions, and relatedproceedings. In particular, countries should:

a) Not prohibit or place unreasonable or undulyrestrictive conditions on the provision of mutuallegal assistance.

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b) Ensure that they have clear and efficient processes for the execution of mutual legal assistance requests.

c) Not refuse to execute a request for mutual legal assistance on the sole ground that the offence is also considered to involve fiscal matters.

d) Not refuse to execute a request for mutual legalassistance on the grounds that laws require financial institutions to maintain secrecy or confidentiality.

Countries should ensure that the powers of their competent authorities required under Recommendation 28 are also available for use in response to requests for mutual legal assistance, and if consistent with their domestic framework, in response to direct requests from foreign judicial or law enforcement authorities to domestic counterparts.

To avoid conflicts of jurisdiction, consideration should be given to devising and applying mechanisms for determining the best venue for prosecution of defendants in the interests of justice in cases that are subject to prosecution in more than one country.

37. Countries should, to the greatest extent possible, render mutual legal assistance notwithstanding the absenceof dual criminality.

Where dual criminality is required for mutual legalassistance or extradition, that requirement should bedeemed to be satisfied regardless of whether bothcountries place the offence within the same categoryof offence or denominate the offence by the sameterminology, provided that both countries criminalisethe conduct underlying the offence.

38.* There should be authority to take expeditious action in response to requests by foreign countries to identify, freeze, seize and confiscate property laundered, proceeds from money laundering or predicate offences, instrumentalities used in or intended for use in the commission of these offences, or property of corresponding value. There should also be arrangements for coordinating seizure and confiscation proceedings, which may include the sharing of confiscated assets.

39. Countries should recognise money laundering as an extraditable offence. Each country should either extradite its own nationals, or where a country does not do so solely on the grounds of nationality, that country should, at the request of the country seeking extradition, submit the case without undue delay to its competent authorities for the purpose of prosecution of the offences set forth in the request. Those authorities should take their decision and conduct their proceedings in the same manner as in the case of any other offence of a serious nature under the domestic law of that country. The countries concerned should cooperate with each other, in particular on procedural and evidentiary aspects, to ensure the efficiency of such prosecutions.

Subject to their legal frameworks, countries may consider simplifying extradition by allowing direct transmission of extradition requests between appropriate ministries, extraditing persons based only on warrants of arrests or judgements, and/or introducing a simplified extradition of consenting persons who waive formal extradition proceedings.

Other forms of cooperation

40.* Countries should ensure that their competent authorities provide the widest possible range of international cooperation to their foreign counterparts. There should be clear and effective gateways to facilitate the prompt and constructive exchange directly between counterparts, either spontaneously or upon request, of information relating to both money laundering and the underlying predicate offences. Exchanges should be permitted without unduly restrictive conditions. In particular:

a) Competent authorities should not refuse a requestfor assistance on the sole ground that the request isalso considered to involve fiscal matters.

b) Countries should not invoke laws that requirefinancial institutions to maintain secrecy orconfidentiality as a ground for refusing to providecooperation.

c) Competent authorities should be able to conductinquiries; and where possible, investigations; onbehalf of foreign counterparts.

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Where the ability to obtain information sought by a foreign competent authority is not within the mandate of its counterpart, countries are also encouraged to permit a prompt and constructive exchange of information with non-counterparts. Cooperation with foreign authorities other than counterparts could occur directly or indirectly. When uncertain about the appropriate avenue to follow, competent authorities should first contact their foreign counterparts for assistance.

Countries should establish controls and safeguards to ensure that information exchanged by competent authorities is used only in an authorised manner, consistent with their obligations concerning privacy and data protection.

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GLOSSARY

In these Recommendations the following abbreviations and references are used:

“Beneficial owner” refers to the natural person(s) who ultimately owns or controls a customer and/or the person on whose behalf a transaction is being conducted. It also incorporates those persons who exercise ultimate effective control over a legal person or arrangement.

“Core Principles” refers to the Core Principles for Effective Banking Supervision issued by the Basel Committee on Banking Supervision, the Objectives and Principles for Securities Regulation issued by the International Organization of Securities Commissions, and the Insurance Supervisory Principles issued by the International Association of Insurance Supervisors.

“Designated categories of offences” means:

•

•••

•

•••••••••••••••

participation in an organised criminal group andracketeering;terrorism, including terrorist financing;trafficking in human beings and migrant smuggling; sexual exploitation, including sexual exploitation ofchildren;illicit trafficking in narcotic drugs and psychotropicsubstances;illicit arms trafficking;illicit trafficking in stolen and other goods;corruption and bribery;fraud;counterfeiting currency;counterfeiting and piracy of products;environmental crime;murder, grievous bodily injury;kidnapping, illegal restraint and hostage-taking;robbery or theft;smuggling;extortion;forgery;piracy; andinsider trading and market manipulation.

When deciding on the range of offences to be covered as predicate offences under each of the categories listed above, each country may decide, in accordance with its domestic

law, how it will define those offences and the nature of any particular elements of those offences that make them serious offences.

“Designated non-financial businesses and professions” means:

a) Casinos (which also includes internet casinos). b) Real estate agents. c) Dealers in precious metals. d) Dealers in precious stones. e) Lawyers, notaries, other independent legal

professionals and accountants – this refers to solepractitioners, partners or employed professionalswithin professional firms. It is not meant to refer to‘internal’ professionals that are employees of othertypes of businesses, nor to professionals workingfor government agencies, who may already besubject to measures that would combat moneylaundering.

f) Trust and Company Service Providers refers to allpersons or businesses that are not covered elsewhereunder these Recommendations, and which as abusiness, provide any of the following services tothird parties:

••

•

•

•

acting as a formation agent of legal persons;acting as (or arranging for another person to actas) a director or secretary of a company, a partnerof a partnership, or a similar position in relationto other legal persons;providing a registered office; business address oraccommodation, correspondence or administrative address for a company, a partnership or any otherlegal person or arrangement;acting as (or arranging for another person to actas) a trustee of an express trust;acting as (or arranging for another person to actas) a nominee shareholder for another person.

“Designated threshold” refers to the amount set out in the Interpretative Notes.

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“Financial institutions” means any person or entity who conducts as a business one or more of the following activities or operations for or on behalf of a customer:

1. Acceptance of deposits and other repayable fundsfrom the public.5

2. Lending.6

3. Financial leasing.7

4. The transfer of money or value.8

5. Issuing and managing means of payment (e.g. creditand debit cards, cheques, traveller’s cheques, moneyorders and bankers’ drafts, electronic money).

6. Financial guarantees and commitments.7. Trading in:

(a) money market instruments (cheques, bills, CDs, derivatives etc.); (b) foreign exchange; (c) exchange, interest rate and index instruments;

(d) transferable securities; (e) commodity futures trading. 8. Participation in securities issues and the provision

of financial services related to such issues.9. Individual and collective portfolio management.10. Safekeeping and administration of cash or liquid securities on behalf of other persons.11. Otherwise investing, administering or managing funds or money on behalf of other persons.12. Underwriting and placement of life insurance and

9 other investment related insurance .13. Money and currency changing.

When a financial activity is carried out by a person or entity on an occasional or very limited basis (having regard to quantitative and absolute criteria) such that there is little risk of money laundering activity occurring, a country may decide that the application of anti-money laundering measures is not necessary, either fully or partially.

In strictly limited and justified circumstances, and based on a proven low risk of money laundering, a country may decide not to apply some or a l l of the Forty Recommendations to some of the financial activities stated above.

“FIU” means financial intelligence unit.

“Legal arrangements” refers to express trusts or other similar legal arrangements.

“Legal persons” refers to bodies corporate, foundations, anstalt, partnerships, or associations, or any similar bodies that can establish a permanent customer relationship with a financial institution or otherwise own property.

“Payable-through accounts” refers to correspondent accounts that are used directly by third parties to transact business on their own behalf.

“Politically Exposed Persons” (PEPs) are individuals who are or have been entrusted with prominent public functions in a foreign country, for example Heads of State or of government, senior politicians, senior government, judicial or military officials, senior executives of state owned corporations, important political party officials. Business relationships with family members or close associates of PEPs involve reputational risks similar to those with PEPs themselves. The definition is not intended to cover middle ranking or more junior individuals in the foregoing categories.

“Shell bank” means a bank incorporated in a jurisdiction in which it has no physical presence and which is unaffiliated with a regulated financial group.

“STR” refers to suspicious transaction reports.

“Supervisors” refers to the designated competent authorities responsible for ensuring compliance by financial institutions with requirements to combat money laundering and terrorist financing.

“the FATF Recommendations” refers to these Recommendat ions and to the FATF Spec i a l Recommendations on Terrorist Financing.

5 This also captures private banking.

6 This includes inter alia: consumer credit; mortgage credit;

factoring, with or without recourse; and finance of commercial transactions (including forfaiting).7 This does not extend to financial leasing arrangements in relation

to consumer products.8 This applies to financial activity in both the formal or informal

sector e.g. alternative remittance activity. See the Interpretative Note to Special Recommendation VI. It does not apply to any natural or legal person that provides financial institutions solely with message or other support systems for transmitting funds. See the Interpretative Note to Special Recommendation VII.9 This applies both to insurance undertakings and to insurance

intermediaries (agents and brokers).

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INTERPRETATIVE NOTES

General

1. Reference in this document to “countries” should betaken to apply equally to “territories” or “jurisdictions”.

2. Recommendations 5-16 and 21-22 state that financialinstitutions or designated non-financial businesses andprofessions should take certain actions. Thesereferences require countries to take measures that willoblige financial institutions or designated non-financial businesses and professions to comply with eachRecommendation. The basic obligations underRecommendations 5, 10 and 13 should be set out inlaw or regulation, while more detailed elements inthose Recommendations, as well as obligations underother Recommendations, could be required either bylaw or regulation or by other enforceable means issuedby a competent authority.

3. Where reference is made to a financial institution beingsatisfied as to a matter, that institution must be ableto justify its assessment to competent authorities.

4. To comply with Recommendations 12 and 16,countries do not need to issue laws or regulations thatrelate exclusively to lawyers, notaries, accountants andthe other designated non-financial businesses andprofessions so long as these businesses or professionsare included in laws or regulations covering theunderlying activities.

5. The Interpretative Notes that apply to financialinstitutions are also relevant to designated non-financial businesses and professions, where applicable.

•

•

•

Financial transactions above a designated threshold include situations where the transaction is carried out in a single operation or in several operations that appear to be linked.

Recommendation 5

Customer due diligence and tipping off

1. If, during the establishment or course of the customerrelationship, or when conducting occasionaltransactions, a financial institution suspects thattransactions relate to money laundering or terroristfinancing, then the institution should:

a) Normally seek to identify and verify the identity ofthe customer and the beneficial owner, whetherpermanent or occasional, and irrespective of anyexemption or any designated threshold that mightotherwise apply.

b) Make a STR to the FIU in accordance withRecommendation 13.

2. Recommendation 14 prohibits financial institutions,their directors, officers and employees from disclosingthe fact that an STR or related information is beingreported to the FIU. A risk exists that customers couldbe unintentionally tipped off when the financialinstitution is seeking to perform its customer duediligence (CDD) obligations in these circumstances.The customer’s awareness of a possible STR orinvestigation could compromise future efforts toinvestigate the suspected money laundering or terroristfinancing operation.

3. Therefore, if financial institutions form a suspicion thattransactions relate to money laundering or terroristfinancing, they should take into account the risk oftipping off when performing the customer duediligence process. If the institution reasonably believesthat performing the CDD process will tip-off thecustomer or potential customer, it may choose not topursue that process, and should file an STR.Institutions should ensure that their employees areaware of and sensitive to these issues when conductingCDD.

Recommendations 5, 12 and 16

The designated thresholds for transactions (under

Recommendations 5 and 12) are as follows:

Financial institutions (for occasional customers underRecommendation 5) - USD/EUR 15,000.Casinos, including internet casinos (underRecommendation 12) - USD/EUR 3000For dealers in precious metals and dealers in preciousstones when engaged in any cash transaction (underRecommendations 12 and 16) - USD/EUR 15,000.

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CDD for legal persons and arrangements

4. When performing elements (a) and (b) of the CDDprocess in relation to legal persons or arrangements,financial institutions should:

a) Verify that any person purporting to act on behalfof the customer is so authorised, and identify thatperson.

b) Identify the customer and verify its identity - thetypes of measures that would be normally neededto satisfactorily perform this function would requireobtaining proof of incorporation or similar evidenceof the legal status of the legal person or arrangement,as well as information concerning the customer’sname, the names of trustees, legal form, address,directors, and provisions regulating the power tobind the legal person or arrangement.

c) Identify the beneficial owners, including formingan understanding of the ownership and controlstructure, and take reasonable measures to verifythe identity of such persons. The types of measuresthat would be normally needed to satisfactorilyperform this function would require identifying thenatural persons with a controlling interest andidentifying the natural persons who comprise themind and management of the legal person orarrangement. Where the customer or the owner ofthe controlling interest is a public company that issubject to regulatory disclosure requirements, it isnot necessary to seek to identify and verify theidentity of any shareholder of that company.

The relevant information or data may be obtained from a public register, from the customer or from other reliable sources.

Reliance on identification and verification already performed

5. The CDD measures set out in Recommendation 5 donot imply that financial institutions have to repeatedlyidentify and verify the identity of each customer everytime that a customer conducts a transaction. Aninstitution is entitled to rely on the identification andverification steps that it has already undertaken unlessit has doubts about the veracity of that information.Examples of situations that might lead an institution

to have such doubts could be where there is a suspicion of money laundering in relation to that customer, or where there is a material change in the way that the customer’s account is operated which is not consistent with the customer’s business profile.

Timing of verification

6. Examples of the types of circumstances where it wouldbe permissible for verification to be completed afterthe establishment of the business relationship, becauseit would be essential not to interrupt the normalconduct of business include:

••

•

Non face-to-face business.Securities transactions. In the securities industry,companies and intermediaries may be requiredto perform transactions very rapidly, accordingto the market conditions at the time the customeris contacting them, and the performance of thetransaction may be required before verificationof identity is completed. Life insurance business. In relation to lifeinsurance business, countries may permit theidentification and verification of the beneficiaryunder the policy to take place after havingestablished the business relationship with thepolicyholder. However, in all such cases,identification and verification should occur at orbefore the time of payout or the time where thebeneficiary intends to exercise vested rights underthe policy.

7. Financial institutions will also need to adopt riskmanagement procedures with respect to the conditionsunder which a customer may utilise the businessrelationship prior to verification. These proceduresshould include a set of measures such as a limitationof the number, types and/or amount of transactionsthat can be performed and the monitoring of large orcomplex transactions being carried out outside ofexpected norms for that type of relationship. Financialinstitutions should refer to the Basel CDD paper10

(section 2.2.6.) for specific guidance on examples ofrisk management measures for non-face to facebusiness.

10 “Basel CDD paper” refers to the guidance paper on Customer

Due Diligence for Banks issued by the Basel Committee on Banking Supervision in October 2001.

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Requirement to identify existing customers

8. The principles set out in the Basel CDD paperconcerning the identification of existing customersshould serve as guidance when applying customer duediligence processes to institutions engaged in bankingactivity, and could apply to other financial institutionswhere relevant.

Simplified or reduced CDD measures

9. The general rule is that customers must be subject tothe full range of CDD measures, including therequirement to identify the beneficial owner.Nevertheless there are circumstances where the risk ofmoney laundering or terrorist financing is lower, whereinformation on the identity of the customer and thebeneficial owner of a customer is publicly available, orwhere adequate checks and controls exist elsewhere innational systems. In such circumstances it could bereasonable for a country to allow its financialinstitutions to apply simplified or reduced CDDmeasures when identifying and verifying the identityof the customer and the beneficial owner.

10. Examples of customers where simplified or reducedCDD measures could apply are:

•

•

•

Financial institutions – where they are subject torequirements to combat money laundering andterrorist financing consistent with the FATFRecommendations and are supervised forcompliance with those controls.Public companies that are subject to regulatorydisclosure requirements.Government administrations or enterprises.

11. Simplified or reduced CDD measures could also applyto the beneficial owners of pooled accounts held bydesignated non financial businesses or professionsprovided that those businesses or professions are subject to requirements to combat money laundering andterrorist financing consistent with the FATFRecommendations and are subject to effective systemsfor monitoring and ensuring their compliance withthose requirements. Banks should also refer to the Basel

CDD paper (section 2.2.4.), which provides specific guidance concerning situations where an account holding institution may rely on a customer that is a professional financial intermediary to perform the customer due diligence on his or its own customers (i.e. the beneficial owners of the bank account). Where relevant, the CDD Paper could also provide guidance in relation to similar accounts held by other types of financial institutions.

12. Simplified CDD or reduced measures could also beacceptable for various types of products or transactionssuch as (examples only):

•

•

•

Life insurance policies where the annual premiumis no more than USD/EUR 1000 or a singlepremium of no more than USD/EUR 2500.Insurance policies for pension schemes if there isno surrender clause and the policy cannot be usedas collateral.A pension, superannuation or similar scheme thatprovides retirement benefits to employees, wherecontributions are made by way of deduction fromwages and the scheme rules do not permit theassignment of a member’s interest under thescheme.

13. Countries could also decide whether financialinstitutions could apply these simplified measures onlyto customers in its own jurisdiction or allow them todo for customers from any other jurisdiction that theoriginal country is satisfied is in compliance with andha s e f f e c t i v e l y imp l emen t ed t h e FATFRecommendations.

Simplified CDD measures are not acceptable wheneverthere is suspicion of money laundering or terroristfinancing or specific higher risk scenarios apply.

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Recommendation 6

Countries are encouraged to extend the requirements of Recommendation 6 to individuals who hold prominent public functions in their own country.

Recommendation 9

This Recommendation does not apply to outsourcing or agency relationships.

This Recommendation also does not apply to relationships, accounts or transactions between financial institutions for their clients. Those relationships are addressed by Recommendations 5 and 7.

Recommendation 10 and 11

In relation to insurance business, the word “transactions” should be understood to refer to the insurance product itself, the premium payment and the benefits.

Recommendation 13

1. The reference to criminal activity in Recommendation13 refers to:

a) all criminal acts that would constitute a predicateoffence for money laundering in the jurisdiction;or

b) at a minimum to those offences that wouldconstitute a predicate offence as required byRecommendation 1.

Countries are strongly encouraged to adopt alternative (a). All suspicious transactions, including attempted transactions, should be reported regardless of the amount of the transaction.

2. In implementing Recommendation 13, suspicioustransactions should be reported by financial institutions regardless of whether they are also thought to involvetax matters. Countries should take into account that,in order to deter financial institutions from reportinga suspicious transaction, money launderers may seekto state inter alia that their transactions relate to taxmatters.

Recommendation 14 (tipping off )

Where lawyers, notaries, other independent legal professionals and accountants acting as independent legal professionals seek to dissuade a client from engaging in illegal activity, this does not amount to tipping off.

Recommendation 15

The type and extent of measures to be taken for each of the requirements set out in the Recommendation should be appropriate having regard to the risk of money laundering and terrorist financing and the size of the business.

For financial institutions, compliance management arrangements should include the appointment of a compliance officer at the management level.

Recommendation 16

1. It is for each jurisdiction to determine the matters thatwould fall under legal professional privilege orprofessional secrecy. This would normally coverinformation lawyers, notaries or other independentlegal professionals receive from or obtain through oneof their clients: (a) in the course of ascertaining thelegal position of their client, or (b) in performing theirtask of defending or representing that client in, orconcerning judicial, administrative, arbitration ormediation proceedings. Where accountants are subjectto the same obligations of secrecy or privilege, thenthey are also not required to report suspicioustransactions.

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2. Countries may allow lawyers, notaries, otherindependent legal professionals and accountants tosend their STR to their appropriate self-regulatoryorganisations, provided that there are appropriateforms of co-operation between these organisations andthe FIU.

Recommendation 19

1. To facilitate detection and monitoring of cashtransactions, without impeding in any way the freedom of capital movements, countries could consider thefeasibility of subjecting all cross-border transfers, abovea given threshold, to verification, administrativemonitoring, declaration or record keepingrequirements.

2. If a country discovers an unusual internationalshipment of currency, monetary instruments, preciousmetals, or gems, etc., it should consider notifying, asappropriate, the Customs Service or other competentauthorities of the countries from which the shipmentoriginated and/or to which it is destined, and shouldcooperate with a view toward establishing the source,destination, and purpose of such shipment and towardthe taking of appropriate action.

Recommendation 25

When considering the feedback that should be provided, countries should have regard to the FATF Best Practice Guidelines on Providing Feedback to Reporting Financial Institutions and Other Persons

Recommendation 23

Recommendation 23 should not be read as to require the introduction of a system of regular review of licensing of controlling interests in financial institutions merely for anti-money laundering purposes, but as to stress the desirability of suitability review for controlling shareholders in financial institutions (banks and non-banks in particular) from a FATF point of view. Hence, where shareholder suitability

(or “fit and proper”) tests exist, the attention of supervisors should be drawn to their relevance for anti-money laundering purposes.

Recommendation 26

Where a country has created an FIU, it should consider applying for membership in the Egmont Group. Countries should have regard to the Egmont Group Statement of Purpose, and its Principles for Information Exchange Between Financial Intelligence Units for Money Laundering Cases. These documents set out important guidance concerning the role and functions of FIUs, and the mechanisms for exchanging information between FIU.

Recommendation 27

Countries should consider taking measures, including legislative ones, at the national level, to allow their competent authorities investigating money laundering cases to postpone or waive the arrest of suspected persons and/ or the seizure of the money for the purpose of identifying persons involved in such activities or for evidence gathering. Without such measures the use of procedures such as controlled deliveries and undercover operations are precluded.

Recommendation 38

Countries should consider:

a) Establishing an asset forfeiture fund in its respectivecountry into which all or a portion of confiscatedproperty will be deposited for law enforcement, health,education, or other appropriate purposes.

b) Taking such measures as may be necessary to enable itto share among or between other countries confiscatedproperty, in particular, when confiscation is directlyor indirectly a result of co-ordinated law enforcementactions.

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Recommendation 40

1. For the purposes of this Recommendation:

•

•

“Counterparts” refers to authorities that exercisesimilar responsibilities and functions.

“Competent authority” refers to all administrativeand law enforcement authorities concerned withcombating money laundering and terroristfinancing, including the FIU and supervisors.

2. Depending on the type of competent authorityinvolved and the nature and purpose of the cooperation, different channels can be appropriate forthe exchange of information. Examples of mechanismsor channels that are used to exchange informationinclude: bilateral or multilateral agreements orarrangements, memoranda of understanding,exchanges on the basis of reciprocity, or throughappropriate international or regional organisations.However, this Recommendation is not intended tocover cooperation in relation to mutual legal assistanceor extradition.

3. The reference to indirect exchange of information withforeign authorities other than counterparts covers thesituation where the requested information passes fromthe foreign authority through one or more domestic orforeign authorities before being received by the requesting authority. The competent authority that requests theinformation should always make it clear for what purpose and on whose behalf the request is made.

4. FIUs should be able to make inquiries on behalf offoreign counterparts where this could be relevant toan analysis of financial transactions. At a minimum,inquiries should include:

•

•

Searching its own databases, which would include information related to suspicious transactionreports.Searching other databases to which it may havedirect or indirect access, including lawenforcement databases, public databases,administrative databases and commerciallyavailable databases.

Where permitted to do so, FIUs should also contact other competent authorities and financial institutions in order to obtain relevant information.

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The Eight Recommendations to Combatthe Financing of Terrorismthe Financing of Terrorism The Eight Recommendations to Combat Annex III

Recognising the vital importance of taking action to combat the financing of terrorism, the FATF has agreed these Recommendations, which, when combined with the FATF Forty Recommendations on money laundering, set out the basic framework to detect, prevent and suppress the financing of terrorism and terrorist acts.

I. Ratification and implementation of UN instruments

Each country should take immediate steps to ratify and implement fully the 1999 United Nations International Convention for the Suppression of the Financing of Terrorism. Countries should also immediately implement the United Nations resolutions relating to the prevention and suppression of the financing of terrorist acts, particularly United Nations Security Council Resolution 1373.

II. Criminalising the financing of terrorism and associated money laundering

Each country should criminalise the financing of terrorism, terrorist acts and terrorist organisations. Countries should ensure that such offences are designated as money laundering predicate offences.

III. Freezing and confiscating terrorist assets

Each country should implement measures to freeze without delay funds or other assets of terrorists, those who finance terrorism and terrorist organisations in accordance with the United Nations resolutions relating to the prevention and suppression of the financing of terrorist acts.

Each country should also adopt and implement measures, including legislative ones, which would enable the competent authorities to seize and confiscate property that is the proceeds of, or used in, or intended or allocated for use in, the financing of terrorism, terrorist acts or terrorist organisations.

IV. Reporting suspicious transactions related to terrorism

If financial institutions, or other businesses or entities subject to anti-money laundering obligations, suspect or have reasonable grounds to suspect that funds are linked or related to, or are to be used for terrorism, terrorist acts or by terrorist organisations, they should be required to report promptly their suspicions to the competent authorities.

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The Eight Recommendations to Combat the Financing of Terrorism

V. International co-operation

Each country should afford another country, on the basis of a treaty, arrangement or other mechanism for mutual legal assistance or information exchange, the greatest possible measure of assistance in connection with criminal, civil enforcement, and administrative investigations, inquiries and proceedings relating to the financing of terrorism, terrorist acts and terrorist organisations.

Countries should also take all possible measures to ensure that they do not provide safe havens for individuals charged with the financing of terrorism, terrorist acts or terrorist organisations, and should have procedures in place to extradite, where possible, such individuals.

VI. Alternative remittance

Each country should take measures to ensure that persons or legal entities, including agents, that provide a service for the transmission of money or value, including transmission through an informal money or value transfer system or network, should be licensed or registered and subject to all the FATF Recommendations that apply to banks and non-bank financial institutions. Each country should ensure that persons or legal entities that carry out this service illegally are subject to administrative, civil or criminal sanctions.

VII. Wire transfers

Countries should take measures to require financial institutions, including money remitters, to include accurate and meaningful originator information (name, address and account number) on funds transfers and related messages that are sent, and the information should remain with the transfer or related message through the payment chain. Countries should take measures to ensure that financial institutions, including money remitters, conduct enhanced scrutiny of and monitor for suspicious activity funds transfers which do not contain complete originator information (name, address and account number).

VIII. Non-profit organisations

Countries should review the adequacy of laws and regulations that relate to entities that can be abused for the financing of terrorism. Non-profit organisations are particularly vulnerable, and countries should ensure that they cannot be misused by terrorist organisations posing as legitimate entities to exploit legitimate entities as conduits for terrorist financing, including for the purpose of escaping asset freezing measures; and to conceal or obscure the clandestine diversion of funds intended for legitimate purposes to terrorist organisations.

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Documents

THE FINANCIAL ACTION TASK FORCE ON MONEY … · Commissioner’s Message “Hong Kong has been a member of the Financial Action Task Force on Money Laundering (FATF) since 1990 and