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Bank Supervision | Combat Against Money Laundering and Financing of Terrorism in the World

Combat Against Money Laundering and Financing of Terrorism in the World

Cognizant of the real danger of organised crime at the global level, the international community has developed a strategy of combating the most dangerous forms of crime, such as trafficking in narcotics, firearms, human beings, etc, all of these activities being inextricably linked to money laundering. To enhance the efficiency of combating money laundering and financing of terrorism in member states, the United Nations and European Union have adopted the following documents:

United Nations

1) Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances – Vienna Convention
2) Convention Against Transnational Organised Crime
3) Convention Against Corruption
4) 1999 International Convention for the Suppression of the Financing of Terrorism (Terrorist Financing Convention)

European Union

The European Union adopted the fourth Directive on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing which came into force on 25 June 2015 and should be incorporated in member states’ national legislation within two years. The directive takes into account the latest amendments to FATF Recommendations from 2012. The main amendments concern further improvements to the implementation of risk-based approach through strengthening of supervision, rules for identifying a beneficial owner, politically exposed persons, customer due diligence measures etc. 
 

Moneyval

Council of Europe’s MONEYVAL (Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism) was founded in 1997 to ensure, through the process of mutual evaluation, that its member states have in place effective systems to counter money laundering and terrorist financing and comply with relevant international standards in the field. MONEYVAL evaluation procedures involve the collection of information through a questionnaire, which is followed by an on-site country visit by a team of evaluators elected by the MONEYVAL Secretariat. The visit leads to drafting of the report on harmonisation of the country’s legislation and practice with international standards. After several rounds of consultation, the final version of the report is adopted at a plenary meeting held three times a year. Each report describes and analyses anti-money laundering and combating the financing of terrorism (AML/CFT) measures in place in the country, and provides recommendations on strengthening some aspects of the system. MONEYVAL possesses mechanisms of coercing member states to implement its recommendations and apply other measures at the government level. These mechanisms include the requirement of regular reporting to MONEYVAL on the progress achieved, as well dispatching a high-level diplomatic mission to the member state or the state’s exclusion from membership of the Council of Europe. The reports adopted by MONEYVAL are public and are used in estimates of financial stability and safety of investing in some countries. The International Monetary Fund and World Bank receive MONEYVAL’s reports to prepare their own analyses and reports.

A MONEYVAL team of evaluators visited Serbia from 28 September to 9 October 2016 within the fifth round of evaluation (detailed evaluation) of measures and actions taken by the Republic of Serbia to prevent money laundering and terrorist financing. The evaluation report was adopted at MONEVAL’s 50th plenary meeting held in the Council of Europe, in Strasbourg and published on the MONEYVAL’s website on 9 June 2016. The report evaluates compliance with 40 FATF (Financial Action Task Force) Recommendations and effectiveness of the AML/CFT system in the Republic of Serbia, and sets out measures for system strengthening. NBS representatives participated in all activities prior to and during the evaluators’ visit, as well as in the plenary meeting in which the evaluation report was adopted.

The basic standards that are, among other criteria, used in the evaluation of compliance, are FATF Recommendations. 

FATF is an inter-governmental body, established in Paris in 1989, whose purpose is the development and promotion of policies to combat money laundering and terrorist financing, as well as to monitor the implementation of AML/CFT measures in member countries. In pursuing its activities, FATF cooperates with other international bodies involved in AML/CFT activities, such as MONEYVAL.

In 2012, FATF amended and published:

  • 40 anti-money laundering recommendations which pertain to setting up an efficient AML system, including the legal system and law enforcement, the financial system and  its regulation, as well as international cooperation.

Basel Committee

 The Basel Committee on Banking Supervision provides a forum for international cooperation and enhancement of the quality of banking supervision worldwide. The Committee has promoted 25 Core Principles for Effective Banking Supervision, including:

  • Principle 7 – risk management process
    Supervisors must be satisfied that banks and banking groups have in place a comprehensive risk management process to identify, evaluate, monitor and control or mitigate all material risks.
  • Principle 18 – abuse of financial services
    Supervisors must be satisfied that banks have adequate policies and procedures in place, including strict “know-your-customer” rules that promote high ethical and professional standards in the financial sector and prevent the bank from being used, intentionally or unintentionally, for criminal activities.

The Basel Committee has also adopted the Paper on Customer Due Diligence for Banks, covering the adoption of “know-your-customer” rules in banks.