Aligning anti-money laundering, combating of financing of terror and financial inclusion : Questions to consider when FATF standards are clarified

Purpose &ndash; The purpose of this paper is to identify key questions that should be addressed to enable the Financial Action Task Force (FATF) to provide guidance regarding the alignment of anti-money laundering, combating of financing of terror and financial inclusion objectives.Design/methodology/approach &ndash; The paper draws on relevant research and documents of the FATF to identify questions that are relevant to consider when it formulates guidance regarding the alignment between financial integrity and financial inclusion objectives.Findings &ndash; The FATF advises that its risk-based approach enables countries and institutions to further financial inclusion. It is, however, not clear what the FATF means when its uses the terms &ldquo;risk&rdquo; and &ldquo;low risk&rdquo;. It is also unclear whether current proposals for financial inclusion regulatory models will necessarily limit money laundering (ML) aswell as terror financing risks to levels that can be described as &ldquo;low&rdquo;. The FATF will need to clarify its own thinking regarding low money laundering and low terror financing risk before it will be able to provide clear guidance to national regulators and financial institutions.Originality/value &ndash; This paper was drafted to inform current FATF discussions regarding guidance on financial inclusion. The questions are relevant to all stakeholders in financial regulation.<br /

Identifying and managing low money laundering risk : perspectives on FATF\u27s risk-based guidance

Purpose &ndash; The purpose of this paper is to investigate Financial Action Task Force (FATF)\u27s risk-based guidance to combat money laundering and terrorist financing to determine its approach to the identification and management of low-risk providers, products and transactions. Design/methodology/approach &ndash; The paper analyses the relevant FATF recommendations and its guidance notes and reflects on key questions for regulators and financial institutions. Findings &ndash; FATF has not defined &ldquo;risk&rdquo; for purposes of the risk-based approach. The absence of a clear definition complicates the identification of low-risk products. FATF do provide an example of a risk matrix that can be used to identify low-risk banks, but the example is based on assumptions and generalisations that are not sustainable. In addition, it identifies certain low-value transactions as &ldquo;low risk&rdquo; transactions. The paper reflects on the role of value as an indicator of risk and concludes with a number of suggestions to clarify the conceptual framework. Originality/value &ndash; Low-risk products and transactions are often overlooked because the risk-based approach focuses attention on high-risk matters. Low-risk products are however crucial to the efforts to increase financial inclusion. The paper identifies gaps in the current conceptual framework and indicates ways in which they can be addressed.<br /

The 2012 Revised FATF Recommendations: Assessing and Mitigating Mobile Money Integrity Risks Within the New Standards Framework

Mobile money holds great financial inclusion promise, but also poses financial integrity challenges. The Financial Action Task Force (FATF)&mdash;the intergovernmental global anti-money laundering (AML) and counter-terrorist financing (CTF) standard-setting body&mdash;expressed support for financial inclusion and mobile money as a means to decrease the use of non-transparent cash in many developing countries. In February 2012, FATF adopted a new revised set of standards. This Article considers the impact of these new standards on mobile money models in developing countries. It highlights aspects of the new standards that would facilitate innovative mobile money models, but also points to questions and challenges. The new standards are generally more facilitative of new financial services models for the unbanked and underbanked, but a number of key questions and implementation challenges remain. These include mobile money-related privacy and cyber-crime concerns

The money laundering risk posed by low-risk financial products in South Africa : findings and guidelines

Purpose &ndash; The purpose of this paper is to investigate the level and nature of criminal abuse of financial products that are classified as posing a low anti-money laundering/combating of financing of terrorists (AML/CFT) risk in South Africa to determine the effectiveness of the simplified due diligence measures that apply to these products. Design/methodology/approach &ndash; The paper presents empirical research on the views of bank officials and law enforcement officials regarding the criminal abuse of South African financial products that are subject to simplified customer due diligence controls. Findings &ndash; South Africa\u27s AML/CFT laws allow certain deposit-taking institutions and money remitters to implement simplified customer due diligence measures in relation to specific low-risk products that are mainly designed to allow previously unbanked persons to access financial services. The paper finds that the products have been abused by criminals but that the incidence of such abuse and the amounts involved are low. The paper investigates possible weaknesses in the current system that allow limited criminal abuse to occur. It concludes with a number of guidelines that emerge from the study and are of value to regulators that wish to implement a similar system. Originality/value &ndash; The South African AML/CFT scheme in relation to low-risk products is of interest to many international regulators that are grappling with the interplay between effective AML/CFT controls and the impact of strict controls on the ability of socially and economically excluded persons to access appropriate financial services. This paper provides evidence that appropriately designed controls can facilitate financial inclusion while limiting the risk of criminal abuse.<br /

Money laundering control and suppression of financing of terrorism : some thoughts on the impact of customer due diligence measures on financial exclusion

Purpose &ndash; The purpose of this paper is to explore the relationship between anti-money laundering (&ldquo;AML&rdquo;) and combating of financing of terrorism (&ldquo;CFT&rdquo;) customer due diligence (&ldquo;CDD&rdquo;) measures in the financial services industry, and exclusion from financial services.Design/methodology/approach &ndash; An introduction to the concept of financial exclusion is provided as well as an overview of international AML/CFT CDD standards. The paper highlights a softening of national CDD measures in South Africa and the UK to lessen the impact on financial exclusion.Findings &ndash; Countries should consider the impact that CDD requirements may have on financial exclusion when they design their AML/CFT systems.Research limitations/implications &ndash; Multi-discilinary research is required to improve the understanding of the broader interaction between AML/CFT objectives, financial exclusion and economic development, especially in countries with a large informal economy.Practical implications &ndash; CDD requirements may unnecessarily exacerbate financial exclusion if they are not formulated with care to reflect the reality of the particular country setting.Originality/value &ndash; The paper offers insights into the international standards resulting to the identification of clients and the experiences in the UK and South Africa regarding the implementation of these standards on financial exclusion.<br /

Financial inclusion and financial integrity : aligned incentives?

A large percentage of the population in developing countries saves, remits money or accesses credit using informal financial services. Financial inclusion initiatives aim to expand the reach and attractiveness of formal financial services. Recently, the Financial Action Task Force embraced financial inclusion as complementary to anti-money laundering and counter-terrorist financing as it enhances financial transparency. Analyzing preliminary data from FinScope surveys on eight African countries we argue that an increase in access to formal services does not automatically imply an immediate and corresponding reduction of usage of informal services, especially as many individuals use informal and formal services in parallel. We consider customer trade-offs regarding the use of formal and informal services especially considering transparency as a potential disincentive to use formal services. The alignment of financial inclusion and integrity will fail where customers are apprehensive about increased transparency.<br /