Mr Lindsay Chan Executive Officer APG Secretariat

1. WB/APG Regional Workshop for Training Supervisors on AML/CFT Compliance SupervisionJakarta, Indonesia, May 11-14 2009Session 2 (a):Key findings on AML/CFT supervision from MERs/DARs – Strengths and Weaknesses Mr Lindsay Chan Executive Officer APG Secretariat Asia/Pacific Group on Money Laundering

2. APG Mutual Evaluations – Second Round • On-site Completed • Bangladesh • Philippines • Vietnam • Cook Islands • Pakistan • New Zealand • Planned • Afghanistan • Lao PDR • Report Adopted • Australia • Cambodia • Canada • Chinese Taipei • Fiji • Hong Kong, China • Indonesia • Japan • Macao, China • Malaysia • Mongolia • Myanmar • Palau • Samoa • Singapore • Sri Lanka • Thailand Asia/Pacific Group on Money Laundering

3. Relevant FATF Recommendations • Financial Institutions • CDD and Record Keeping • – R.5-12, SRVI • Suspicious Transactions Reporting • - R.13-15, SRIV • Other Measures (shell banks and CTRs) • - R.18, 19 • Measures with respect to Countries • - R.21, 22 Supervisory Authorities Supervision – R.23 Supervisory Powers – R.29 Sanctions – R.17 Guidance and Feedback – R.25 Domestic and International Cooperation – R.31 and 40 Resources and Statistics – R.30, 32 Asia/Pacific Group on Money Laundering

4. Ratings from APG Mutual Evaluations • Recommendations 23, 29, 17, 25 • R.23, mostly PC but also NC and LC • R.29, mostly PC, some LC/C but no NC • R.17 mostly PC but also NC and LC • All financial institutions/sectors and not just banking sector • Consolidated rating – difficult to separate banking sector from non-banking financial sectors Asia/Pacific Group on Money Laundering

5. Risk Assessment • No jurisdiction has undertaken a comprehensive risk assessment. • Some jurisdictions have exempted certain sectors based on risk but assessors have concluded that no proper risk assessments were conducted. • FATF risk exemption approach is based on proven low risk of ML/TF and NOT the opposite approach i.e. AML/CFT applied when there is a proven ML/TF risk. Asia/Pacific Group on Money Laundering

6. Guidelines and Other Enforceable Means • Issues identified in mutual evaluation reports of whether “Guidelines” issued by competent authorities are “Other Enforceable Means”. • Other Enforceable Means” refers to guidelines, instructions or other documents or mechanisms that set out enforceable requirements with sanctions for non-compliance. • FATF inclusion of “Drivers” . Asia/Pacific Group on Money Laundering

7. Designated AML/CFT Supervisory Authority (R. 23) and Resources (R.30) • Legal: No designated AML/CFT supervisor or lack of clarity • Integrated Prudential and AML/CFT Supervisor • FIU based in Central Bank undertakes AML/CFT supervision • FIU as AML/CFT supervisor • Lack of resources for designated supervisor • Scope issues – not all institutions are covered Asia/Pacific Group on Money Laundering

8. Market Entry (Recommendation 23) • Banking licence requirements (but not always based on services provided). • Fit and proper test requirement but not sufficiently comprehensive e.g. excludes senior management. • Lack of beneficial ownership requirements for both natural and legal persons with significant or controlling interest– local and foreign. • Some issues with on-going monitoring and compliance with fit and proper test requirements. Asia/Pacific Group on Money Laundering

9. Ongoing Supervision (Recommendation 23) • No off-site and on-site supervision • Regular off-site and on-site supervision with a risk based approach • Lack of effectiveness despite presence of risk assessment and off-site and on-site supervision e.g. not identifying systemic problems or violations • On-site visits deficient in approach e.g. no sampling or focused on awareness raising Asia/Pacific Group on Money Laundering

10. Supervisory Powers (Recommendation 29) • Adequate powers to undertake on-site inspection but there are scope issues • - Inspection limited because of shortcomings in AML/CFT requirements e.g. limited to CDD, STR reporting and record keeping. • The power to compel production of records is limited e.g. on data and records of deposits and withdrawals. • Supervisors don’t have powers, beyond onsite inspections, to compel or obtain access to relevant records to monitor compliance. • Effectiveness: lack of use of powers e.g. lack of inspections or sanctions. Asia/Pacific Group on Money Laundering

11. Sanctions (Recommendation 17) • Lack of effective, proportionate and dissuasive sanctions. • Only criminal/penal sanctions available even for administrative violations. • There is no criminal sanction for legal persons (Financial Institutions). • Available administrative penalties are inconsistent. • There is a lack of persuasive monetary penalties available. Asia/Pacific Group on Money Laundering

12. Sanctions (Recommendation 17) • The type and nature of sanctions actually imposed is inadequate in view of the many AML/CFT non-compliance findings. • • The authorities have not adequately reviewed the appropriateness of sanctions in light of the large number of warnings issued to financials institutions. • The lack of effective sanctions applied in cases of major deficiencies raises real concern in terms of effectiveness of the sanction regime. • No criminal sanctions have been applied, despite the existence of known serious breaches. • No statistics available showing how many sanctions had been imposed. Asia/Pacific Group on Money Laundering

13. Guidance and Feedback (Recommendation 25) • Reporting guidelines and basic STR guidelines, measures are adequate. Other guidelines—i.e., internal controls, CDD not covered. • Lack of specific sectoral guidelines. • The approach taken to establishing guidelines is not clear and shifts the obligation to issue guidelines to financial institutions • - The competent authorities are required to merely “review” the guidelines and procedures. • Guidance (including typologies) issued to financial institutions does not cover all of the issues in the relevant FATF Recommendations. • Guidance has not been updated consistent with current AML/CFT requirements. Asia/Pacific Group on Money Laundering

14. Guidance and Feedback (Recommendation 25) • The only feedback provided is the acknowledgment for submitted suspicious transaction reports. • Inadequate feedback on STR reporting. • Need to provide more specific feedback including statistical comparisons of STRs submitted and typologies data. Asia/Pacific Group on Money Laundering

15. Domestic and International Cooperation (Recommendations 31 and 40) • There is scope to improve co-operation/co-ordination between AML/CFT supervisory agencies, and also to enhance co-operation at the policy level • Financial regulators and the FIU do not share sufficient information regarding compliance in the financial sector. • The supervisory authorities have no arrangements for international cooperation in AML/CFT. Asia/Pacific Group on Money Laundering

16. THANK YOU! • QUESTIONS? Asia/Pacific Group on Money Laundering