49960 v5 Combating Money Laundering and the Financing of Terrorism A Comprehensive Training Guide Workbook 1. Effect on Economic Development and International Standards 3 Workbook 2. Legal Requirements to Meet International Standards 71 Workbook 3a. Regulatory and Institutional Requirements for AML/CFT 151 Workbook 3b. Compliance Requirements for Financial Institutions 255 Workbook 4. Building an Effective Financial Intelligence Unit 347 Workbook 5. Domestic (Inter-Agency) and International Cooperation 439 Workbook 6. Combating the Financing of Terrorism 503 Workbook 7. Investigating Money Laundering and Terrorist Financing 605 Combating Money Laundering and the Financing of Terrorism: A Comprehensive Training Guide 5 Domestic (Inter-Agency) and International Cooperation Workbook Combating Money Laundering and the Financing of Terrorism: A Comprehensive Training Guide 5 Domestic (Inter-Agency) and International Cooperation Workbook About the Training Modules Combating Money Laundering and the Financing of Terrorism: A Comprehensive Training Guide is one of the products of the Capacity Enhancement Program on Anti­Money Laundering and Combating the Funding of Terrorism (AML/CFT), which has been co-funded by the Governments of Sweden, Japan, Denmark, and Canada. The program offers countries the tools, skills, and knowledge to build and strengthen their institutional, legal, and regulatory frameworks to successfully implement their national action plan on these efforts. This workbook is one of the following training course modules: MODULE 1: EFFECTS ON ECONOMIC DEVELOPMENT AND INTERNATIONAL STANDARDS Module 1 introduces the fundamental concepts of money laundering and terrorist financing; their implications for development from economic, social, and governance perspectives; and existing international standards and key international players in the fight against money laundering and terrorist financing. MODULE 2: LEGAL REQUIREMENTS TO MEET INTERNATIONAL STANDARDS Module 2 covers satisfying the international standards on AML/CFT and the legislative action that this usually requires. In exploring those implications and possible legislative needs, this workbook answers the following questions: · What are the international conventions and treaties that deal with AML/CFT? · What legal and institutional arrangements satisfy international standards? · What are the legal issues related to international cooperation? · Where can one find model laws? MODULE 3A: REGULATORY AND INSTITUTIONAL REQUIREMENTS FOR AML/CFT Module 3a introduces the regulatory and institutional requirements for AML/CFT and addresses the following issues: · Responsibility for effective supervision · Institutions subject to AML/CFT compliance · The principal regulatory and institutional requirements · Internal audit and compliance programs · Professional associations and their roles · Enforcement of AML/CFT requirements MODULE 3B: COMPLIANCE REQUIREMENTS FOR FINANCIAL INSTITUTIONS Module 3b considers AML/CFT from the perspective of a bank or other financial institution and provides the necessary information for employees of such institutions who deal with a wide range of AML/CFT issues. It also provides additional inputs for compliance officers of financial institutions. A separate section of the workbook deals with some issues that are more pertinent to compliance officers. iii iv | Module 5 MODULE 4: BUILDING AN EFFECTIVE FINANCIAL INTELLIGENCE UNIT Module 4 examines the financial intelligence unit (FIU) and its role in the national AML/CFT regime and addresses the following issues: · Basic concepts of the FIU, suspicious transaction reports, and how they fit into AML/CFT regimes · Building FIU functionality · Coordination and cooperation at the policy and operational levels · Skills, integrity, and security of FIU personnel MODULE 5: DOMESTIC (INTERAGENCY) AND INTERNATIONAL COOPERATION Module 5 introduces the importance of interagency and international cooperation in the fight against money- laundering activities. MODULE 6: COMBATING THE FINANCING OF TERRORISM Module 6 focuses on combating the financing of terrorism (CFT), a new area for many countries compared to the anti-money laundering (AML) effort. The workbook starts with a brief review of the CFT issues raised in the previous workbooks, addresses some general questions related to CFT, and then discusses the FATF Nine Special Recommendations on Terrorist Financing in combination with the international obligation of states. MODULE 7: INVESTIGATING MONEY LAUNDERING AND TERRORIST FINANCING Module 7 introduces the practice of investigating activities that involve laundering of the proceeds of crime and discusses investigations of terrorist financing activities. Acknowledgments The initial work for this training program was provided by Emiko Todoroki and Azuma Miura, the World Bank. Module 3a was further written and developed by Manuel Vasquez, International Monetary Fund. The draft was reviewed by John McDowell, the World Bank and Thomas Grahn, Financial Supervisory Authority of Sweden. Pedagogical guidance was provided by Sheila Jagannathan, and peer review was conducted by Emiko Todoroki, the World Bank. In 2007 and 2008, updates and review were provided by Klaudijo Stroligo, Cedric Mousset, Paul Allan Schott, and Emiko Todoroki, the World Bank. Key sources for this workbook include Financial Action Task Force on Money Laundering, "The Forty Recommendations" (2003) and "Special Recommendations on Terrorist Financing" (2005); and Paul Allan Schott, Reference Guide to Anti­Money Laundering and Combating the Financing of Terrorism, Second Edition, the World Bank, 2004. CAPACITY ENHANCEMENT PROGRAM ON ANTI­MONEY LAUNDERING AND COMBATING THE FINANCING OF TERRORISM Program Director: Latifah Merican Cheong Task Team Leader: Emiko Todoroki Instructional Design: Sheila Jagannathan Production: Miguel Nicolas De La Riva, Jr. Illustrations: James Quigley Design: Naylor Design, Washington, D.C. Composition: Precision Graphics, Champaign, Illinois Domestic (Interagency) and International Cooperation Module 5 introduces the importance of interagency and international coop- eration in anti-money laundering and combating the financing of terrorism (AML/CFT) activities. This module addresses the following issues: 1. Interagency Cooperation: Why is it central to AML/CFT? 3 1.1 Multidisciplinary approach to AML/CFT 5 1.1.1 The objectives 6 1.1.2 The tools 7 1.1.3 The main actors 8 1.1.4 Building cooperation 12 1.2 A memorandum of cooperation among AML/CFT agencies 15 1.3 Ongoing dialogue between government agencies and industry 16 1.4 National AML/CFT strategy 18 1.5 Information exchange and sharing 19 2. International Cooperation: Why is it important? 23 2.1 Building an efficient AML/CFT strategy 23 2.2 Prerequisites for effective international cooperation 26 2.3 Modalities and channels for international assistance 28 This module covers the following Financial Action Task Force (FATF) Recommendations: · Domestic interagency processes: Recommendations 25, 31, and 32 · International Cooperation: Recommendations 35­37, 40, and Special Recommendation V At the end of this module, you will be able to · explain why domestic interagency cooperation and sharing of information are central to AML/CFT; · describe what mechanisms and tools are useful in enhancing domestic interagency cooperation; --continued 2 | Module 5 · discuss how financial sector supervisory authorities and law enforcement should cooperate and exchange information; · explain why international cooperation, effective exchange of information, and mutual legal assistance are important to AML/CFT; · list best practices for effective international cooperation; and · give examples of how to enhance international cooperation. 1 Interagency Cooperation: Why is it central to AML/CFT? How much do you know? Let us start by looking at some practical examples where domestic coordination comes into play. Read the brief scenarios, and answer the questions that follow in the spaces provided. QUESTION 1. Following the acquittal of a known money launderer in your coun- try, a small police station in a remote village discovers evidence that may have supported a conviction. As a result, your Parliament has demanded a report on recommendations to minimize legal, political, and bureaucratic impediments to interagency cooperation. You decide to hold meetings with representatives from relevant agencies to better understand and identify the impediments to informa- tion sharing and domestic cooperation. What government agencies/institutions in your country would you want to contact? QUESTION 2. Your minister of justice has received complaints from counterparts in neighboring countries about your country's lack of cooperation and informa- tion sharing on money laundering (ML) and terrorist financing (FT) cases. The minister asks the financial intelligence unit (FIU) to draft a report identify- ing political, legal, regulatory, and bureaucratic impediments to international cooperation and legal assistance. What government agencies/institutions should top the list of those you need to contact? Where could you find the most useful information on impediments, other than government agencies? QUESTION 3. The AML/CFT law in your country now requires that certain professionals and entities not subject to official supervision be obligated to 3 4 | Module 5 monitor and report suspicious transactions and certain cash transactions to the FIU. The head of your FIU wants to organize meetings with representatives of these professions, entities, and organizations to discuss what modes of compli- ance would work best for them. Which professions and entities would you recommend to meet? QUESTION 4. You are an assessor serving on a World Bank/IMF evaluation mis- sion in Xanadu. Can you list five statistical indicators/documents you could request from Xanadu authorities to gain a preliminary understanding of domes- tic coordination and international cooperation? QUESTION 5. What financial (or banking) sector principle is the most common impediment to information sharing, for domestic or international purposes? QUESTION 6. You are responsible for AML/CFT issues at your country's Ministry of Finance and you are heading a national delegation to a plenary meeting of the FATF-Style Regional Body (FSRB) in which your country participates, in Blich. Because you are coming directly from a third country, there was not enough time to organize an interagency coordination meeting before joining the plenary. On the first day of the plenary meeting, colleagues from your delegation's other agencies have yet to arrive. The Ministry of Justice representative for Begunia, a neighboring country, has proposed to meet you to discuss bilateral coopera- tion on AML/CFT, particularly between the FIU and prosecution authorities. He expresses interest in discussing specific, individual cases and, in particular, a letter your country sent to Begunia's justice minister addressing a highly visible corruption case involving a bank branch, in your country, of a major financial institution headquartered in Begunia. Domestic (Inter-Agency) and International Cooperation | 5 You are unaware of the specific money laundering case; however, you recall that in an interagency discussion some time ago, the head of your banking supervi- sory agency complained that Begunia's international cooperation appeared less than robust. He insisted that his views not be shared with the relevant national agencies in your country. Although your Ministry of Finance and banking supervisory colleagues will not arrive until the next morning, you agree to meet one-on-one that evening. Several events or circumstances described above do not promote high-quality domestic and international cooperation. Note three such circumstances you noticed in the space provided below. 1.1 Multidisciplinary approach to AML/CFT AML/CFT is a multifaceted endeavor. A multidisciplinary approach to AML/ CFT should mobilize all relevant agencies. There is no "one-size-fits-all" descrip- tion of agencies that should participate in AML/CFT activities: each country has unique institutional settings. In this context, a broad approach may be the most conducive to identifying the parties at stake. The focus should be on the design mechanisms best suited to each country for the easy assimilation of coordina- tion schemes (systems). There will be further discussion on this later. Domestic coordination should be built on two pillars: the public authorities and the private sector. 6 | Module 5 This module focuses on the institutional settings to be put in place to foster domestic coordination. Other modules in this course lay out the specific condi- tions to be met to ensure that exchanges of information are legally possible at the domestic level and operationally facilitated. However, the first condition is a strong political will to encourage domestic coordination and exchange of information among the various domestic players both at the policy and opera- tional levels. It is necessary to ensure that the constituents see the benefits and bear the fruits of domestic coordination. In the final analysis, all of the con- stituent agencies benefit because the country benefits from a more productive AML/CFT regime and robust prosecutions. A cross-cutting approach The very rationale during the 1980s to adopt a cross-cutting approach to money laun- dering (focusing initially on drug trafficking) was precisely to use the money trail and to leverage all possible resources. The fight against corruption and bribery (as recently evidenced by the inclusion of corruption/bribery in the list of predicate offenses) is another good example of the benefits of this approach, as the detection of the cor- ruption act itself is usually very difficult--although tracing the money trail can prove very useful (see, for instance, the Abacha case and Mobutu case). Interagency cooperation is one of the most challenging aspects of implementing an effective AML/CFT regime arising from the following examples: · The great diversity of predicate offenses (bribery, corruption, smuggling, customs offenses, etc.) requires experts from a variety of specialized agencies or supervisory authorities that do not traditionally communicate with each other. · ML and TF are largely perceived as victimless crimes that are transactional in nature. Unlike more traditional crimes, and absent a proactive attitude by all agencies involved in the fight against ML/FT, hard evidence of ML/TF emerges late (i.e., assets are transferred). The most useful evidence consists primarily of financial records, which are often locked away in financial institutions (FIs), and protected by banking/ financial secrecy principles and not readily accessible to law enforcement agencies. · Prevention and detection depend on reporting of suspicious transactions by indi- viduals who owe some duty of confidentiality to their clients; reporting is based on suspicions as opposed to hard evidence. 1.1.1 THE OBJECTIVES QUESTION 7. Can you identify two main objectives of domestic coordination? Domestic (Inter-Agency) and International Cooperation | 7 For discussion Domestic coordination does not take place in a given country out of the blue. It proceeds from a conscious process and from an organized mobilization of infor- mation sharing/coordination mechanisms. Based on the description above of the objectives and expected benefits of enhanced domestic coordination, please describe the tools you would use in your country and the key actors you deem necessary for successful domestic coordination on AML/CFT. Use the space below for your response. 1.1.2 THE TOOLS It is important to embed in each country's institutions the mechanisms to foster interagency coordination. The following have been found to be generally useful: · Quick reporting lines to the political level, providing momentum, legiti- macy, and guidance · Ongoing review of the legal framework, in light of practical experience and challenges, which requires regular feedback for law enforcement, FIU, and regulators on implementation failures · Constructive dialogue on an ongoing basis between proponents with differ- ent legitimate viewpoints (for instance, investigative bodies and supervisory authorities) · Careful review of communication channels and gateways that are in place with the purpose of improving the effectiveness and efficiency of those communication channels and gateways · Review of intelligence agencies' information databases to understand all potential sources of information that are available to those involved with AML/CFT and determine whether reciprocal agreements should be utilized. Integration and coordination Although the primary objective of AML/CFT work is to prevent, detect, and pros- ecute those involved with ML and TF, many agencies involved in this work were originally created to pursue other primary objectives. Integrating the various and diverse agencies into an effective AML/CFT regime is one of the biggest challenges of effective implementation. One traditional example in that respect is the need to coordinate between the FIU and the supervisory authorities so that supervisory inspections assess compliance with --continued 8 | Module 5 suspicious transaction or activity reporting (STR/SAR) and cash transaction reporting (CTR) requirements, as well as effectively sanction incidents of noncompliance. As the FIU possesses the institutional expertise to understand suspicious patterns of activities (i.e., "red flags") across sectors and industries, this information must be coordinated and shared with relevant supervisors and disseminated to reporting institutions so they can understand how to identify what might be suspicious. Coordination among supervisory agencies in the financial sector is also an important prerequisite to level the playing field and to address the specific challenges of financial conglomerates. Law enforcement officials, police, and prosecution authorities must also share information with the FIU and supervisory agencies so they are informed of trends and targeted risk-based priorities. 1.1.3 The main actors Interagency cooperation can be an enormous challenge when AML/CFT frame- works are put in place and should, therefore, not be taken for granted. In some countries, there may be laws that separate law enforcement from intelligence functions. However, overly strict intelligence secrecy policies and procedures can seriously impede AML/CFT work. There is certainly the need for good coordination and communication among various authorities involved. This means the need to share a unified approach and implement measures necessary to combat money laundering and terrorist financing. This also means the need for rapid exchange of information among the various authorities. It calls for a complete understanding and identifica- tion of the agencies that should be involved and how their work, expertise, and perspectives can add value to overall AML/CFT efforts. There is also a need for a mix of formal (perhaps a dedicated coordination body) and informal com- munications/dialogue, which can play a crucial role engendering trust among partners. The agencies involved in the multidisciplinary process must be tailored to each country's circumstances. The following key agencies usually participate at the operational level: · Ministry of Justice and Prosecutor General · Home Affairs/Interior Ministry/investigative agencies/police · Ministry of Finance · Financial Intelligence Unit (FIU) · Central Bank and other supervisors/regulators of the financial sector · Supervisory authorities in the designated non-financial businesses and pro- fessions (DNFBPs) · Customs and tax authorities Domestic (Inter-Agency) and International Cooperation | 9 Below are certain selected countries. See who is involved in each country's national AML/CFT effort. National AML/CFT efforts around the world The United States · Central Intelligence Agency (CIA) · Department of Homeland Security · U.S. Customs and Border Protection · U.S. Immigration and Customs Enforcement (ICE) · Secret Service · Department of Justice · Drug Enforcement Administration · Federal Bureau of Investigation (FBI) · Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF) · Prosecutors · Department of Treasury · Office of the Comptroller of the Currency (OCC) · National Credit Union Administration (NCUA) · Financial Crimes Enforcement Network (FinCEN) · Internal Revenue Service · Office of Thrift Supervision (OTS) · Office of Foreign Assets Control · Department of State · Federal Reserve Board · Federal Deposit Insurance Corporation · U.S. Congress · U.S. Postal Service Brazil · Brazilian Agency of Intelligence · Central Bank of Brazil · Federal Police Department · General Attorney Office for the National Treasury · Ministry of Foreign Affairs · Secretariat of Federal Revenue · Securities and Exchange Commission · Superintendence of Private Insurance Croatia · Administrative Services of the State · Anti­Money Laundering Department--Croatian's (FIU) · Customs · Ministry of Finance · Ministry of Interior · Police Services · Supervision of Foreign Transactions Department · Tax Department · National Bank --continued 10 | Module 5 Belgium · Administrative Services of the State · Banking, Finance, and Insurance Commission · Belgium Financial Intelligence Processing Unit (CTIF-CFI) · Central Office for Seizure and Confiscation (COSC) · Chamber of Representatives of Belgium · Federal Public Service Finance · Federal Public Service Justice · Federal Police Switzerland · Money Laundering Report Office Switzerland (MROS) · Federal Department of Justice and Police · Federal Customs Administration · Federal Office of Private Insurance · Federal Finance Administration/Money Laundering Control Authority · Swiss Federal Banking Commission · Swiss National Bank Australia · AUSTRAC · Anti-Corruption Commission (WA) · Australian Crime Commission · Australian Federal Police · Australian Securities and Investments Commission · Australian Security Intelligence Organisation · Australian Taxation Office · Australian Taxation Office · Crime and Misconduct Commission (Queensland) · Independent Commission Against Corruption (NSW) · New South Wales Crime Commission (NSW) · Police Integrity Commission (NSW) · State and Territory Police Services · State and Territory Revenue Authorities Argentina · Banco Central · Comisión Nacional de Valores · Ministerio de Economía · Ministerio de Justicia · Ministerio Público Fiscal · Ministerio de Relaciones Exteriores · Unidad de Información Financiera (UIF) Domestic (Inter-Agency) and International Cooperation | 11 Cyprus · Attorney General's Office · Department of Customs and Excise · Ministry of Foreign Affairs · Unit for Combating Money Laundering (MOKAS) · Ministry of Justice and Public Order · Police · National Bank Bulgaria · Ministry of Interior · National Service for Combating Organized Crime · National Security Service · National Police Service Directorate · National Border Police Service · Ministry of Finance · The Bureau of Financial Intelligence (BFI) · Customs Agency and General Tax Directorate · National Investigation Service · Supreme Prosecution Office of Cassation FATF Recommendation 31 stresses the need for enhanced interagency coopera- tion, and Recommendation 32 advises countries to institute a mechanism to review AML/CFT regimes. Regarding the latter recommendation, its objective goes well beyond the issue of domestic coordination, as it aims to measure the effectiveness of AML/CFT regimes. However, such a measure cannot take place outside an interagency process, and undertaking such an assessment of effective- ness should be used as an incentive for domestic coordination and exchange of information. See Appendix B for more information on FATF Recommendation 31. Also see Appendix C for more information on FATF Recommendation 32. Knowledge check QUESTION 8. What are the minimum standards set by the FATF Recommenda- tions for domestic coordination and exchange of information? 12 | Module 5 QUESTION 9. Can you identify at least two tools the FIU can use to provide feedback on suspicious activity/transaction reports (SARs/STRs) to reporting institutions? 1.1.4 BUILDING COOPERATION Once again, a one-size-fits-all approach or mechanism is inappropriate for AML/CFT frameworks. Issues to consider include the following: · Countries may choose to organize an interagency coordination committee or council. It is important to clarify the mandate of such a body. The focus should be on the exchange of information; this may be done on either an individual case or policy issue basis, or both. · It may prove useful for legal reasons, among others, to have the coordination committee focus on architectural issues, such as legal impediments. · Information sharing on individual cases also can be left to a more restricted dedicated body or to bilateral relationships between relevant units. It is essential the "policy coordination committee" members have working gateways in place. A memorandum of cooperation among agencies respon- sible for AML/CFT can help to achieve more fluid and timely exchanges of information. · Several countries have used interagency coordination mechanisms to develop a national AML/CFT strategy, which fosters political buy-in, bol- sters interagency ownership, and improves monitoring of the overall AML/ CFT framework efficiency. Interagency cooperation An interagency coordination committee or council should include representatives from the various agencies involved in AML/CFT to ensure an effective and efficient AML/ CFT system. Depending on each country's institutional experience and culture, its required level of formalization will have to be assessed on a case-by-case basis. Opera- tional coordination usually takes place on a more bilateral basis, depending on the legal framework for domestic exchange of information. The committee or council should meet regularly and can usefully build on the work of more technical subcommittees. A chair should be appointed and may be rotated periodi- cally or one agency designated to take the lead in the coordination efforts, depending upon the preferred or standard procedure for other interagency committees. Domestic (Inter-Agency) and International Cooperation | 13 For discussion Let us consider AML/CFT implementation in your country. Do you have knowl- edge of (or does there exist) a clear statement of the national AML/CFT policy objectives at the political level in your country? Does this document (decree, law, or other form) designate a particular body/institution responsible for achieving these objectives? Does the statement delineate how progress is to be measured, how often, and by whom (i.e., are annual or other periodic reports required)? Have resources (financial and other) been allocated/designated for reaching these goals? If a policy statement along these lines does not yet exist, do you think one would help minimize the barriers to domestic interagency coordination? Let us see some country cases. Brazil The Council for Financial Activities Control (COAF), under the jurisdiction of the Ministry of Finance, was created for the purpose of issuing regulations, applying administrative sanctions, receiving pertinent information, and examining and identifying suspicious occurrences of the illicit activities defined in this law. COAF also coordinates and suggests systems of cooperation and exchange of information to enable rapid and efficient responses in the struggle against concealment or disguise of proceeds of criminal activities and terrorist financing funds, such as assets, rights, and valuables. It consists of the following parts: 14 | Module 5 Lebanon A national committee coordinates AML policies in Lebanon. The committee is chaired by one of the vice governors of the Bank of Lebanon who is nominated by the gover- nor and includes the following members: · SIC (Special Investigation Commission-Lebanon's FIU) secretary · Representative of the prosecutor's office · Banking Control Commission member · Customs representative · Representative of Lebanese Internal Security Forces Cyprus To achieve the highest level of coordination among various agencies, the Republic of Cyprus recognized the need to create a special body that would facilitate interagency cooperation for a unified approach and implement the measures necessary to combat terrorism. This has now been achieved with a decision of the Council of Ministers to set up a Coordinating Body against Terrorism. This body is chaired by the deputy attor- ney general and is composed of representatives of the police, the Customs Depart- ment, members of the Law Office of the Republic, the Ministry of Justice and Public Order, the Unit for Combating Money Laundering (MOKAS), and the CIA. Domestic (Inter-Agency) and International Cooperation | 15 For discussion The number of agencies involved in the national AML/CFT effort may come as a surprise. Please think about the following questions: · Can you identify how many key agencies in your country are involved in AML/CFT? · What are the existing mechanisms for coordination? Are they AML/CFT- related or more general? · Do your current interagency settings and authorities allow for critical assess- ment (building on implementation experience) of the overall AML/CFT framework and conflict-resolution mechanisms? 1.2 A memorandum of cooperation among AML/CFT agencies QUESTION 10. Which agency would you see as the best candidate to develop a network memorandum of cooperation? National agencies may enter into formal, mutual agreements to further col- laboration and the exchange of information on AML/CFT. Interagency agree- ments integrate the procedures of different agencies and encourage day-to-day communication with other agencies. Agreements of this nature are useful to the FIU, which builds on multidisciplinary experience. The location of an FIU in the AML/CFT infrastructural setting can be a contentious issue; controversy can be alleviated at the outset by insisting on the multidisciplinary features of the FIU and creating a set of responsibilities for the related agencies. In that respect, staff exchanges bring in a variety of experiences and contribute to mutual under- standings. Let us look at some country cases. Mutual agreements Bulgaria In 2002, one cooperation agreement was reached between the Bureau of Financial Intelligence (BFI) and the National Audit Office and another between the BFI and the Agency for State Internal Financial Control. In 2003, another agreement was reached between the BFI and the Insurance Supervision Authority. The existence of such --continued 16 | Module 5 agreements confirms the willingness of the institutions involved to cooperate and puts in place the mechanisms to facilitate that cooperation. Georgia A memorandum of cooperation was signed among the Financial Monitoring Service of the National Bank of Georgia, Georgian Bankers Association, Georgian Economists Association, and the National Committee of the International Chamber of Commerce, to promote the enforcement of the country's AML regime. The parties that signed the agreement believe it will enhance financial monitoring practices in the country. 1.3 Ongoing dialogue between government agencies and industry Working with the finance industry is essential for enforcement strategies on money laundering and terrorist financing--from both the regulatory and the information-sharing perspectives. Regulators and/or interagency committees or councils should organize regular meetings with representatives of the finance industry. And as the scope of professions covered by the AML/CFT framework increases, appropriate channels of communication and dialogue on AML/CFT issues must open up with those covered professions (for example, lawyers, accountants, notaries). This is all the more important because many of these professions are supervised by independent associations rather than government supervisory bodies and thus oversight and supervision are not as formal and developed as they are for the finance industry. Why is this dialogue important? The main purpose of this dialogue is to increase cooperation between regulators and those entities that are regulated. Such two-way communication is generally very useful for supervisory officials and policy makers, allowing them to better understand the implementation challenges faced by those required to comply. This is particularly true in an area like AML/CFT because it is often unfamiliar territory for many of those sub- ject to compliance obligations. It is important that regulators avoid imposing unnecessary burdens on regulated entities and individuals. The key to the success of their efforts is ensuring that regula- tory obligations and procedures are clear, workable, effective, and efficient (i.e., user friendly). Similarly, consultation with regulated entities and industry representatives is instrumental; it is particularly useful for affected entities to provide feedback on draft regulations before finalization. Continual dialogue also helps to foster the commitment of the industry over time and to avoid misinterpretations and misunderstandings. Domestic (Inter-Agency) and International Cooperation | 17 Several tools are needed for dialogue, such as: · Legislation: Agencies must be legislatively authorized to undertake AML/ CFT work (or not prohibited from it). · Resources: Agencies must have the resources (or allocated additional resources) to contribute to AML/CFT work. · Coordination: The specific responsibilities of each agency should be clearly defined and delegated so that each agency understands how its expertise adds value to the national AML/CFT effort and accepts its role. · Cooperation and communication: Regular meetings should be arranged between agencies for continued dialogue to encourage the airing of different viewpoints and opinions. In the long run, the teamwork and creative prob- lem solving that should emerge should also trigger constructive and creative solutions. Supervisory agencies responsible for compliance matters--including AML/CFT compliance obligations--should support the entities they supervise by providing information necessary for identifying suspicious transactions or behaviors (called "red flags"). Regular publication of industry-specific information, or "guidelines," regarding trends in suspicious activities for a country or region, is particularly beneficial. The FIU should educate supervisory agencies on these patterns and trends to prevent the overreporting of low-quality information. Feedback is an important mechanism to help supervisory agencies and supervised entities understand when reported data are useful and when they are not. FATF Recommendation 25 emphasizes the need for feedback from all com- petent authorities (i.e., beyond the FIU) to all covered financial institutions and designated non-financial businesses and professionals (DNFBPs) under the AML/CFT framework. See Appendix D for more information on FATF Recom- mendation 25. What kind of feedback is useful to the industry? While feedback should include all aspects of compliance, it should specifically focus on SARs/STRs (refer to FATF Recommendation 25). Some countries (e.g., Slovenia) allow for feedback on individual STRs between the FIU and the reporting institution. The FIU or other competent authority should complement such feedback with regular information on overall AML/CFT trends. For this purpose, cases are often sanitized to keep them confidential and to focus more on patterns and trends. Feedback on prosecutions highlights and reinforces the benefits of industry collaboration. 18 | Module 5 EXAMPLES OF FEEDBACK The United States The U.S. financial intelligence unit (FinCEN) works in close collaboration with the Bank Secrecy Act Advisory Group (BSAAG), which provides a forum for frank exchanges of views and promotes cooperation and understanding between law enforcement agen- cies and the financial community. The group's members represent the financial services industry, including both big and small banks, as well as the representatives of the securi- ties industry, casinos, and money services businesses (check cashers, money transmit- ters, and issuers of traveler's checks). State and federal law enforcement agencies and financial institution supervisors are part of the group. France France's Monetary and Financial Code was amended in 2001 to create a liaison commit- tee for the fight against money laundering and terrorist financing. All agencies involved in the fight and all professions required to report are represented on this committee, which is cochaired by the FIU and the Ministry of Justice, with the Treasury Department providing the secretariat. The liaison committee meets twice a year at the principals' level after the meetings of technical subcommittees. Subgroups are set up to deal with issues requiring in-depth technical dialogue and analysis. The liaison committee is an important source of feedback to the industry on STRs and prosecution activity, and for identifying, at the political level, the main challenges in the AML/CFT effort. Bulgaria Bulgaria's BFI values its good relationship with the commercial banks. BFI representa- tives attend seminars organized by commercial banks, where AML measures and other practical aspects of cooperation between the two sectors are discussed. Feedback on reports submitted to the BFI by commercial banks is another point of discussion. The BFI also has a good relationship with the Association of Commercial Banks. In the past, the BFI proposed amendments to the Law on Measures against Laundering Money. Interpol Interpol recommends closer cooperation between law enforcement agencies and bank- ing and financial institutions. Such cooperation is useful, for example, in the develop- ment of guidelines and in the investigation of international fraud and financial crimes. 1.4 National AML/CFT strategy A comprehensive national AML/CFT strategy creates a collective vision for combating ML/FT at the national level. The strategy should guide national AML/CFT coordination efforts. A national strategy can prove instrumental in implementing FATF Recommendations that give more weight to risk analysis, where such a strategy is tailored to cope with major risks and threats. To this end, the following complementary objectives can be pursued by a country: · Define strategic objectives. · Foster coordination, define specific responsibilities, and delineate guidelines and procedures. Domestic (Inter-Agency) and International Cooperation | 19 · Align resources and tools with strategic objectives. · Define the method and timing to measure effectiveness. See Appendix E for further information on a national strategy. The strategy should be dynamic so that it undergoes regular review and revision. It should evolve over time to counter changing typologies of money launderers and ter- rorist financiers, as well as changing circumstances in the country, including changes in the institutional structures. National strategies can serve as a very efficient mechanism to raise public awareness on the importance of AML/CFT and begin a dialogue about common concerns, such as privacy. Other points to talk about are goals, key priorities, and agencies charged with action plans. It is critical for countries to hear all the relevant voices in the development of a national AML/CFT strategy. Law enforcement and financial regulatory authorities must work in partnership with covered financial institutions and DNFBPs to counter the criminal sector in an effective manner. 1.5 Information exchange and sharing It is absolutely critical for information sharing and exchange among agencies in a country, both domestically and internationally, that each agency clearly understand the legal and theoretical constraints that restrict information sharing. Once understood, efforts should be undertaken to remove unnecessary barri- ers. Officials and policy makers should understand very clearly the costs of not sharing information and benefits of information sharing. Money laundering and terrorist financing transactions, in many of the important cases, tend to cross borders of several countries (jurisdictions). Additionally, the speed at which electronic transfers can be made ensures that criminals can easily put their assets out of reach of authorities, if evidence of the transaction activities cannot be appropriately shared on a timely basis. Therefore, unnecessary constraints or bureaucratic procedures, required as a condition for information sharing, can render the best AML/CFT system ineffective. The exchange of intelligence information between national authorities is central to the prevention, investigation, and prosecution of money laundering and terror- ist financing. The horizontal AML/CFT approach builds on SARs or STRs, creat- ing, at the national level, a web of information exchanges. To facilitate a secure, but rapid, exchange of sensitive information, it is useful to consider developing a secure database that can be shared by all relevant authorities. Various authorities should be able to add financial intelligence information to the database. Regulatory authorities, the FIU, and law enforcement must, together, ensure that information gateways and exchanges are secured, swift, and reciprocal. When setting up a new AML/CFT framework or improving an existing one, it is of paramount importance to make it clear that confidential information gathered through SAR/STR mechanisms will remain confidential, and that any abuse 20 | Module 5 or misuse will be punished. This is the key to assuring banks and other finan- cial entities--and ultimately clients--that there is no unauthorized use of data received from SARs/STRs. The following chart illustrates key channels of inter- agency communication used by the main actors in a typical AML/CFT system. Again, there is no "one-size-fits-all" approach, and each network will have to be tailored to each country's circumstances. Examples of information exchange The United States Together with a federal court decision in November 2002, the USA Patriot Act ("Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism, USA PATRIOT ACT of 2001") has broken down what had been called "the wall" that legally separated law enforcement and intelligence functions. The idea was to improve coordination and information sharing between the law enforcement community and intelligence agencies. Since the attacks of September 11, the cultural and operational wall between the FBI and CIA has also been broken down, with the two agencies becoming better integrated at every level of operation. Australia The Australian Transaction Reports and Analysis Centre (AUSTRAC) provides the Australian Taxation Office (ATO) and specified law enforcement, security, and revenue agencies with both general and specific access to information collected from financial transactions reports. Under memoranda of understanding (MOU), partner agencies have controlled online access to the data and, where appropriate, may extract parts of the data holdings. This allows foreign partners to add AUSTRAC's financial intelligence to Domestic (Inter-Agency) and International Cooperation | 21 their own intelligence, so as to provide a clearer picture of the activities being exam- ined. Access includes referrals of information initiated by AUSTRAC or by cash dealers that suggest new instances of money laundering. Knowledge check QUESTION 11. Is it mandatory to define a national AML/CFT strategy? QUESTION 12. Can you write about two benefits of developing an AML/CFT national strategy? QUESTION 13. Why is it necessary for the banking sector supervisor to consult with the FIU when defining its on-site inspection program? What information should he or she get from the FIU? QUESTION 14. What information gathered during on-site inspections could be of interest to the FIU? QUESTION 15. Can you name three government agencies or institutions that are important parts of an effective AML/CFT framework? 22 | Module 5 You are a member of the World Bank/IMF assessing the AML/CFT system (and its effectiveness) in Xanadu. During the discussions with the authorities, the following issues are raised. QUESTION 16A. Your advice is sought on the best institutional setting for an FIU. Please select one proposal among the following. The best institutional setting for the FIU is: a) Within the Central Bank b) No one-size-fits-all answer; several features can contribute to efficient domestic coordination: memoranda of understanding, staff exchanges, annual reports c) Within the Ministry of Justice d) To report directly to the prime minister e) Within the prosecutor's office f) Within the police QUESTION 16B. The authorities have proposed the following agencies to partici- pate in your meetings: the Central Bank, Customs, and the Ministry of Finance. You have been asked to offer your suggestions. Select the most appropriate response from the following: a) Agree to this program. b) Request additional meetings with the FIU. c) Request additional meetings with the FIU and the Ministry of Justice. d) Request additional meetings with the FIU, the Ministry of Justice, the police, and the prosecutor's office. e) Request additional meetings with the FIU, the Ministry of Justice, the police, the prosecutor's office, the judiciary, and the supervisors. QUESTION 17. Prepare a quick list of the bodies, agencies, and so on, that report individual or policy-based information on AML/CFT issues to the FIU in your country. Can you identify any gaps in the previous presentation ("Interagency exchange of information" in section 1.5)? Do you think these gaps result from insufficient coordination among relevant agencies/bodies or are legal impedi- ments hindering the flow of information to the FIU? 2 International Cooperation: Why is it important? 2.1 Building an efficient AML/CFT strategy ML/FT are global problems that not only threaten security but also compro- mise the stability, integrity, transparency, and efficiency of financial systems and undermine economic prosperity. The rapid exchange of information and effec- tive international cooperation among the various agencies throughout the world are prerequisites for success. Money launderers and terrorist financiers use the openness of the international financial system and free movement of capital throughout the world to achieve their goals. Although openness increases associated risks and calls for their man- agement and mitigation, even "closed" economies with restricted international capital flow are not immune to abuse by money launderers and terrorist finan- ciers. Most of the closed economies rely on capital controls that are not designed to address AML/CFT. International cooperation will not be limited to cross-border problems stem- ming from the free movement of capital. Prosecution/law enforcement is a high priority because gathering evidence to support AML/CFT cases requires more and more mutual legal assistance. A comprehensive approach to international cooperation is vital; "silo" approaches are necessary but not sufficient. Here again, this module focuses on the international instruments and tools used to bring about international cooperation, while the other modules in the course present sector-by-sector conditions and incentives. The primary thrust of the course is that a horizontal approach must complement vertical efforts. For the most part, international cooperation is constrained by the following obstacles: · Lack of political will · Legal barriers · Lower priority to informational requests received from outside the country · Concerns related to national security and intelligence information · Concerns on the use of data retrieved through intercepts and surveillance · Concerns regarding how information might be used in another country, in particular if its integrity and confidentiality might be put at risk · High costs 23 24 | Module 5 More international cooperation is needed at different stages, some of which are discussed below: STAGE 1: ENFORCEMENT OF PREVENTION AND DETECTION REQUIREMENTS The cross-border nature of financial flows and the development of financial conglomerates with large international networks make it increasingly necessary for supervisors and regulators to adopt an international approach when assess- ing the implementation of AML/CFT obligations. This is a very strong trend in banking sector supervision, where supervisors are working to increase their coordination and cooperation in the supervision of banks operating in several countries. This does not mean that internationally exposed institutions are at greater risk of being abused by money launderers or terrorist financiers, but it does mean that, in a risk-based approach, enhancing international coordination and cooperation among supervisors is a key tool for AML/CFT. STAGE 2: FINANCIAL INTELLIGENCE GATHERING If transactions have international aspects, FIUs need to exchange information with their foreign counterparts to be able to analyze suspicious activity reports and other financial disclosures. FIU participation in the Egmont Group fosters their international networks. Such participation can be buttressed by developing a set of memoranda of understanding with foreign FIUs, if required by domestic law to share information. STAGE 3: INVESTIGATION The same can be said for the investigative stage for the police and/or other law enforcement bodies to successfully investigate money laundering cases. The quick exchange of information with their foreign counterparts, without undue obstacles or delay, is increasingly becoming a key feature of any FIU, law enforcement, or police authority. In addition, keeping in mind that money launderers and those who finance ter- rorism are always looking for safe havens with lax, ineffective, or corrupt AML/ CFT regimes, or those with limited capabilities for international cooperation, countries will find that having a proper international cooperation framework in place helps them to prevent, detect, and prosecute money laundering and financing of terrorism in their own domestic financial system. Several international bodies, and, of course Interpol, foster international cooperation at the investigative stage. They have placed AML/CFT very high on their agendas. STAGE 4: PROSECUTION Central to AML/CFT prosecution, mutual legal assistance is usually associated with specific and more formalized forms of international cooperation, including ensuring that evidence collected abroad is acceptable. Domestic (Inter-Agency) and International Cooperation | 25 Experience has shown that these objectives can and must be reconciled, pro- vided, first, that the specifics of mutual legal assistance are acknowledged; second, that they are not abused to undermine international cooperation (in particular by imposing undue restrictions); and, finally, that countries are clear on the gateways, requirements, and conditions for mutual legal assistance. STAGE 5: MUTUAL LEGAL ASSISTANCE FATF Recommendations 36 and 37 also emphasize the importance of mutual legal assistance. For more information about mutual legal assistance, please refer to section 3.1 (Mutual legal assistance) in Module 2. See Appendix F for more information on FATF Recommendations 36. See also Appendix G for more information on FATF Recommendation 37. FATF Recommendation 40 encourages countries to provide the widest possible range of international cooperation. See Appendix H for more information on Recommendation 40. Knowledge check Read the following hypothetical scenario for the following three questions: You are a member of the World Bank/IMF mission assessing the AML/CFT regime in Xanadu. QUESTION 18. You want to gain a quick understanding of the degree of interna- tional cooperation by the FIU. Cite three indicators and quantitative measure- ment tools on which you should request information from the authorities. QUESTION 19. You also want to check the quality of domestic coordination when addressing the challenges of international cooperation. Please list three quantitative and measurable indicators you should get information on, from the authorities, to improve your understanding of the situation of the country. 26 | Module 5 QUESTION 20. Secrecy provisions (in particular, banking secrecy) can present significant impediments to international cooperation. Do you know what the fiscal excuse is, and how it can negatively affect international cooperation? 2.2 Prerequisites for effective international cooperation For discussion What do you think are some prerequisites or legal (legislative) steps countries should take in order to ensure that there are adequate legal channels for effec- tive international cooperation? Record your thoughts in the space below, and then find your answers in the following sections. For countries to use the existing channels of international cooperation, they need to meet at least the following three prerequisites: 1) Ratification and implementation the international conventions 2) Compliance with the FATF Recommendations and other sector-specific international standards 3) Building comprehensive and efficient domestic capacity RATIFICATION AND IMPLEMENTATION OF THE INTERNATIONAL CONVENTIONS International conventions are intended to establish some international standards for laws, regulations, and procedures for international exchange of information and mutual legal assistance. Countries should sign and ratify relevant conven- tions--and implement them fully in their domestic laws. FATF Recommenda- tion 35 urges countries to ratify and implement UN Conventions and other relevant international conventions. · UN conventions · UN Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (the Vienna Convention, 1988) · International Convention for the Suppression of the Financing of Terror- ism (the SFT Convention, 1999) Domestic (Inter-Agency) and International Cooperation | 27 · UN Convention against Transnational Organized Crime (the Palermo Convention, 2000) · Conventions adopted by regional organizations that are applicable to spe- cific regions The UN Convention Against Corruption (2003) is, of course, an important additional instrument in the fight against financial crime. For more information on FATF Recommendation 35, see Appendix I. Countries should implement the provisions of these conventions in their domes- tic laws--particularly those related to the criminal offense of money laundering, the criminal offense of terrorist financing, and international cooperation--that will enable them to take part in the mutual legal assistance arrangements these conventions provide. FATF Special Recommendation V stresses the importance of mutual legal assistance, information exchange, and the great possible measure of assistance in connection with criminal, civil enforcement, and administra- tive investigation among countries. It is important to note that ratifying a UN Convention or a convention adopted by a regional organization usually does not make this convention binding in the domestic legal framework; changes in the criminal code and in other laws are often necessary. For more information on FATF Special Recommendation V, see Appendix J. COMPLIANCE WITH THE FATF RECOMMENDATIONS AND OTHER SECTOR-SPECIFIC INTERNATIONAL STANDARDS Countries should comply with international standards. All international standard setters require adhering countries to establish international channels of coopera- tion with foreign partners. For example: · FATF--the FATF Forty Recommendations and the FATF Nine Special Recommendations · Basel Committee on Banking Supervision--Core Principles for Effective Banking Supervision · Basel Committee on Banking Supervision--Customer Due Diligence Principles · International Association of Insurance Supervisors (IAIS) · International Organization of Securities Commissions (IOSCO) · The Egmont Group · The United Nations · Regional instruments that are applicable to specific regions BUILDING COMPREHENSIVE AND EFFICIENT DOMESTIC CAPACITY Putting in place all the necessary authorities--and providing them with neces- sary powers, responsibilities, staffing, and budget--is a prerequisite for a country to cooperate effectively at the international level. Domestic agencies should be able to perform their duties efficiently. 28 | Module 5 For example, countries should establish administrative supervisory authorities to oversee financial institutions in each sector, effective police services having staff with special skills and offering training in money laundering and terrorist financ- ing investigation, and a functioning, noncorrupt judicial/prosecutorial system to have an effective AML/CFT framework. In addition, clarity on the gateways for international cooperation is central to ensure that domestic AML/CFT officials have a good understanding and knowledge of the channels for them to require international support. Too often international cooperation is "measured" by the level of reactivity and responsiveness to requests for international assistance, where the practice of requesting international assistance is also key and should be monitored as well. 2.3 Modalities and channels for international assistance As mentioned previously, international cooperation should take place at four different levels or stages: enforcement of prevention and detection require- ments, financial intelligence gathering, investigation, and prosecution. The key objectives and various tools used to foster international cooperation described in the modules relate to: · Legal requirements (Module 2) · Regulation (Module 3) · Investigation (Module 7) · FIU (Module 4) The reason for the emphasis on international cooperation is that money laun- dering and terrorist financing are cross-border activities and the prevention, detection, investigation, and prosecution of such operations often depend on information sharing among countries and their ability to cooperate efficiently and speedily with their foreign counterparts. Aside from the quality of the legal framework, it is essential that there are incentives for international cooperation at both ends that can be monitored. On very practical grounds, exchanging staff is one of the best avenues for enhancing international cooperation. This can take place at various levels: the regulatory level, FIU level, and law enforcement level. Such an arrangement will be useful among countries at different levels of development of their AML/ CFT regime. On-the-job training is one of the best methods to deliver technical assistance. In some cases, so-called diagonal exchanges of information (i.e., where the request for information sharing or assistance does not take place between equivalent institutions) can become a challenge. The quality of domestic coor- dination and information sharing should allow for the creation of a "triangle" so that appropriate and legitimate communication can take place. Domestic (Inter-Agency) and International Cooperation | 29 Examples of staff exchange Staff exchange of supervisors The Office of the Comptroller of the Currency (OCC), a bureau of the U.S. Department of the Treasury, invites foreign bank supervisors to participate in bank examinations. Staff exchange of U.S. and Swiss law enforcement staff With behind-the-scenes help from Operation Green Quest, the United States and Switzerland struck a historic agreement to exchange special agents to pursue and inter- rupt the sources of terrorist funding.1 Commissioner Robert Bonner and Green Quest Director Marcy Forman attended the signing, which took place in Washington, DC, on September 4, 2002. This groundbreaking agreement, called an "operative working arrangement," sets an international precedent: it allows investigators from Customs Operation Green Quest, the FBI's Terrorist Financial Review Group, and Switzerland's terrorist task force to serve in each other's organizations. You could think of it as an academic exchange program, only bigger. Much bigger. And because it's devoted to pursuing terrorist activities, including and especially those of Al Qaeda, its stakes are much, much higher. Under the agreement, agents from Switzerland's investigative group, called Terror USA, will be assigned to Operation Green Quest and to the FBI's Financial Review Group, while agents from the two American agencies will be assigned to Terror USA. Since the signing, two U.S. Customs agents were detailed to Switzerland for six weeks, and two Swiss agents were detailed to Washington for the same amount of time. The arrangement is not only historic, it's practical: unlike international treaties, which require Senate ratification, this one entails no particular international legal rights or obligations. As transportation and telecommunications keep shrinking our planet, and whole continents can be leapt with a single mouse click, the good guys from all nations are becoming as dependent upon each other as police forces are in neighboring counties. This new operative working arrangement leverages that growing interdependence by allowing countries to share each other's law enforcement information in real time, without the redundancy of effort that would otherwise be involved. It is also another instance of the Customs Service's commitment to finding non- traditional ways of sharing information among, and cooperating with, international law enforcement agencies, especially those with cities that serve as key financial centers. Staff exchange between FIUs The Caribbean Anti-Money Laundering Programme (CALP) works mainly through regional governments and sector organizations to assist Caribbean states in developing comprehensive and effective anti­money laundering strategies. The Programme also offers technical assistance to industry and other professional associations. For the financial sector, it provides training for financial sector employees and their regulators and offers technical advice on the establishment of financial intelligence units. --continued 1 Source: US Customs Today, November 2002 http://www.cpb.gov/xp/CustomsToday/2002/November/swiss.xml. 30 | Module 5 Countries around the world are parties to mutual legal assistance programs, which allow them to share expertise and information that will assist in the detection, investi- gation, and prosecution of offenses. Key organizations in this initiative include: · The United Nations · FATF · CFATF · The Global Money Laundering Programme · INTERPOL · FBI · The National Crimes Intelligence Service ­ London · The Royal Canadian Mounted Police (RCMP) · FinCEN · The U.S. Federal Reserve Banks For additional information, see http://www.cfatf.org/training/training.asp. Check your understanding QUESTION 21. According to the FATF Recommendations, which UN Conven- tions should be signed, ratified, and integrated into the domestic legal frame- work as a prerequisite for effective international cooperation? QUESTION 22. What are the four levels of international cooperation? QUESTION 23. How would you explain the emphasis by the FATF on the notion of gateways for international assistance? Domestic (Inter-Agency) and International Cooperation | 31 QUESTION 24. To foster domestic coordination, an FIU should be given the following missions to make AML/CFT investigations possible: the supervision of banks' compliance with AML/CFT requirements and the reception, analysis, and dissemination of STRs. a) True b) False QUESTION 25. Only the FIU should provide feedback to the private sector on AML/CFT. a) True b) False QUESTION 26. Preparing and publicizing a "national AML/CFT strategy" is not a requirement laid out by the FATF Recommendations. a) True b) False QUESTION 27. The private sector should be kept at arms' length in the imple- mentation of the AML/CFT framework, to avoid undue interference. a) True b) False QUESTION 28. It is possible to measure the quality of domestic and international coordination. a) True b) False QUESTION 29. The Vienna and the Palermo Conventions are the only multilat- eral instruments dealing with AML/CFT. a) True b) False QUESTION 30. When the banking regulator in country X requests interna- tional assistance from the police in country Z, the latter can ignore the request because it is not the counterpart of a financial sector supervisor. a) True b) False QUESTION 31. The only reason to take steps toward the provision of interna- tional assistance is to avoid being put on the FATF noncooperative countries and territories blacklist. a) True b) False QUESTION 32. Formal mechanisms of domestic and international cooperation are not the only tools for ensuring effectiveness. a) True b) False 32 | Module 5 QUESTION 33. Government agencies should maintain contacts with the private sector only through professional associations and undertake consultations only on a sectoral basis. a) True b) False QUESTION 34. The ability to respond quickly to requests for international coop- eration is the main indicator of success for a given jurisdiction. a) True b) False QUESTION 35. Staff exchange at the domestic and international levels cannot be used to promote cooperation because excessive constraints are in place to protect confidentiality. a) True b) False Summary In this module, we discussed: · Why it is important to enhance domestic interagency cooperation · What mechanisms and tools might be useful in improving domestic inter- agency cooperation · Why it is important to enhance international cooperation · The prerequisites for effective international cooperation · What challenges international cooperation might present · How to enhance international cooperation. Appendix A: References FATF Recommendations · The Forty Recommendations (FATF, June 2003) http://www.fatf-gafi.org/dataoecd/7/40/34849567.pdf · Special Recommendations on Terrorist Financing (FATF, October 2001 and October 2004) http://www.fatf-gafi.org/dataoecd/8/17/34849466.pdf Useful Web sites · Asia/Pacific Group on Money Laundering (APG) http://www.apgml.org/ · Basel Committee on Banking Supervision (BCBS) http://www.bis.org/bcbs/index.htm · Caribbean Financial Action Task Force (CFATF) http://www.cfatf.org/eng/ · Egmont Group http://www.egmontgroup.org/ · Financial Action Task Force of South America Against Money Laundering (GAFISUD) http://www.gafisud.org/ · International Association of Insurance Supervisors (IAIS) http://www.iaisweb.org/ · International Organization of Securities Commissions (IOSCO) http://www.iosco.org · Council of Europe Select Committee of Experts on the Evaluation of Anti­Money Laundering Measures (MONEYVAL) [European regional AML/CFT body for Europe jurisdictions that are not members of the FATF] http://www.coe.int/T/E/Legal_affairs/Legal_co-operation/Combating_eco- nomic_crime/ · INTERPOL http://www.interpol.int/Default.asp 33 34 | Module 5 Reference Documents · Core Principles for Effective Banking Supervision (Basel Core Principles) (BCBS, September 1997) http://www.bis.org/publ/bcbsc102.pdf · Customer Due Diligence for Banks (BCBS, October 2001) http://www.bis.org/publ/bcbs85.pdf · Principles for Information Exchange between Financial Intelligence Units for Money Laundering and Terrorism Financing Cases (The Egmont Group, Statement of Purpose, Annex) (The Egmont Group, June 2001) http://www.egmontgroup.org/princ_info_exchange.pdf · Revised Statement of Purpose (The Egmont Group, June 2004) http://www.egmontgroup.org/statement_of_purpose.pdf · United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances: Vienna Convention (UN, 1988) http://www.unodc.org/pdf/convention_1988_en.pdf · United Nations Convention for the Suppression of the Financing of Terror- ism (UN, 1999) http://untreaty.un.org/English/Terrorism/Conv12.pdf · United Nations Convention against Transnational Organized Crime: Pal- ermo Convention (UN, 2000) http://www.unodc.org/adhoc/palermo/convmain.html · Convention on Laundering, Search, Seizure, and Confiscation of the Pro- ceeds from Crime: The Strasbourg Convention (Council of Europe, Sep- tember 1990) http://conventions.coe.int/Treaty/EN/Treaties/Html/141.htm · Convention on Laundering, Search, Seizure, and Confiscation of the Pro- ceeds from Crime and on the Financing of Terrorism: The Warsaw Conven- tion (Council of Europe, May 2005). http://conventions.coe.int/Treaty/EN/Treaties/Html/198.htm Appendix B: FATF Recommendation 31 Countries should ensure that policy makers, the FIU, law enforcement, and supervisors have effective mechanisms in place that enable them to cooperate, and, where appropriate, coordinate domestically with each other concerning the development and implementation of policies and activities to combat money laundering and terrorist financing. 35 Appendix C: FATF Recommendation 32 Countries should ensure that their competent authorities can review the effectiveness of their systems to combat money laundering and terrorist financing systems by maintaining comprehensive statistics on matters relevant to the effectiveness and efficiency of such systems. This should include statis- tics on the STR received and disseminated; on money laundering and terrorist financing investigations, prosecutions, and convictions; on property frozen, seized, and confiscated; and on mutual legal assistance or other international requests for cooperation. 36 Appendix D: FATF Recommendation 25 The competent authorities should establish guidelines and provide feedback that will assist financial institutions and DNFBPs in applying national measures to combat money laundering and terrorist financing, and in particular, in detect- ing and reporting suspicious transactions (see Interpretative Note). Interpretative Note to Recommendation 25 When considering the feedback that should be provided, countries should heed the FATF Best Practice Guidelines on Providing Feedback to Reporting Finan- cial Institutions and Other Persons. 37 Appendix E: Goals of a national strategy The primary goals of a national strategy are to: · Lay out collective objectives and priorities. · Better integrate the pillars of the national AML/CFT framework (preven- tion, detection, law enforcement and prosecution, domestic exchange of information, international cooperation) by · adopting effective preventive measures, in particular cooperative public- private efforts, · strengthening interagency collaboration and enhancing information sharing, · mobilizing the resources needed to implement the national strategy (human, financial, training, and so on), and · measuring the effectiveness of AML/CFT efforts. · Align resources accordingly. · Provide a framework to define qualitative and quantitative targets--and therefore to measure progress and impact. · Lay out the main constraints to better international cooperation. In addition, a national AML/CFT strategy constitutes a very good instrument for engaging policy makers and clarifying responsibilities and accountabilities-- while raising awareness among the public. 38 Appendix F: FATF Recommendation 36 Countries should rapidly, constructively, and effectively provide the widest pos- sible range of mutual legal assistance in relation to money laundering and terror- ist financing investigations, prosecutions, and related proceedings. In particular, countries should: a. Not prohibit or place unreasonable or unduly restrictive conditions on the provision of mutual legal assistance 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 legal assistance 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 frame- work, 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 defen- dants in the interests of justice in cases that are subject to prosecution in more than one country. 39 Appendix G: FATF Recommendation 37 Countries should, to the greatest extent possible, render mutual legal assistance notwithstanding the absence of dual criminality. Where dual criminality is required for mutual legal assistance or extradition, that requirement should be deemed to be satisfied regardless of whether both countries place the offence within the same category of offence or denominate the offence by the same terminology, provided that both countries criminalise the conduct underlying the offence. 40 Appendix H: FATF Recommendation 40 Countries should ensure that their competent authorities provide the widest possible range of international co-operation 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: · Competent authorities should not refuse a request for assistance on the sole ground that the request is also considered to involve fiscal matters. · Countries should not invoke laws requiring financial institutions to maintain secrecy or confidentiality as a ground for refusing to provide co-operation. · Competent authorities should be able to conduct inquiries, and where pos- sible, investigations, on behalf of foreign counterparts. Where the ability to obtain information sought by a foreign competent author- ity is not within the mandate of its counterpart, countries are also encouraged to permit a prompt and constructive exchange of information with noncounter- parts. Co-operation 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 authorized manner, con- sistent with their obligations concerning privacy and data protection. Interpretative Note For the purposes of this Recommendation: · "Counterparts" refers to authorities that exercise similar responsibilities and functions. · "Competent authority" refers to all administrative and law enforcement authorities concerned with combating money laundering and terrorist financing, including the FIU and supervisors. 41 42 | Module 5 Depending on the type of competent authority involved and the nature and purpose of the co-operation, different channels can be appropriate for the exchange of information. Examples of mechanisms or channels that are used to exchange information include: bilateral or multilateral agreements or arrange- ments, memoranda of understanding, and exchanges on the basis of reciprocity or through appropriate international or regional organisations. However, this Recommendation is not intended to cover co-operation in relation to mutual legal assistance or extradition. The reference to indirect exchange of information with foreign authorities other than counterparts covers the situation where the requested information passes from the foreign authority through one or more domestic or foreign authorities before being received by the requesting authority. The competent authority that requests the information should always make it clear for what purpose and on whose behalf the request is made. FIUs should be able to make inquiries on behalf of foreign counterparts where this could be relevant to an analysis of financial transactions. At a minimum, inquiries should include: · Searching its own databases, which would include information related to suspicious transaction reports · Searching other databases to which it may have direct or indirect access, including law enforcement databases, public databases, administrative data- bases, and commercially available databases. Where permitted to do so, FIUs should also contact other competent authorities and financial institutions to obtain relevant information. Appendix I: FATF Recommendation 35 Countries should take immediate steps to become party to and implement fully the Vienna Convention, the Palermo Convention, and the 1999 United Nations International Convention for the Suppression of the Financing of Terrorism. Countries are also encouraged to ratify and implement other relevant interna- tional conventions, such as the 1990 Council of Europe Convention on Laun- dering, Search, Seizure, and Confiscation of the Proceeds from Crime and the 2002 Inter-American Convention against Terrorism. 43 Appendix J: FATF Special Recommendation V Each country should afford another country, on the basis of a treaty, arrange- ment, 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 relat- ing to the financing of terrorism, terrorist acts, and terrorist organisations. Countries should also take all possible measures to ensure that they do not pro- vide 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. Guidance notes This Recommendation contains five elements: · Jurisdictions should permit the exchange of information regarding terrorist financing with other jurisdictions through mutual legal assistance mechanisms. · Jurisdictions should permit the exchange of information regarding terrorist financing with other jurisdictions by means other than through mutual legal assistance mechanisms. · Jurisdictions should have specific measures to permit the denial of "safe haven" to individuals involved in terrorist financing. · Jurisdictions should have procedures that permit the extradition of indi- viduals involved in terrorist financing. · Jurisdictions should have provisions or procedures to ensure that "claims of political motivation are not recognized as a ground for refusing requests to extradite persons alleged to be involved in terrorist financing." To obtain a clear picture of the situation in each jurisdiction through the self- assessment process, an artificial distinction has been made for some questions in the (SAQTF) between international co-operation through mutual legal assis- tance mechanisms on the one hand and information exchange through means other than through mutual legal assistance. 44 Domestic (Inter-Agency) and International Cooperation | 45 For the purposes of SR V, the term mutual legal assistance means the power to provide a full range of both non-coercive and coercive legal assistance, includ- ing the taking of evidence; the production of documents for investigation or as evidence; the search and seizure of documents or things relevant to criminal proceedings or to a criminal investigation; and the ability to enforce a foreign restraint, seizure, forfeiture, or confiscation order in a criminal matter. In this instance, mutual legal assistance would also include information exchange through rogatory commissions (that is, from the judicial authorities in one juris- diction to those in another). Exchange of information by means other than through mutual legal assistance includes any arrangement other than those described in the preceding para- graph. Under this category should be included exchanges that take place among FIUs, police, and law enforcement agents or other agencies that communicate bilaterally on the basis of MOU, exchanges of letters, and so on--where required by the domestic legal framework. With regard to the last three elements of SR V, these concepts should be understood as referred to in the relevant UN documents. These are S/RES/1373 (2001), paragraph 2c (for denial of safe haven); the UN Con- vention, Article 11 (for extradition); and the UN Convention, Article 14 (for rejection of claims of political motivation as related to extradition). The text of the UN Convention may be consulted at http://untreaty.un.org/ English/Terrorism.asp; the text of S/RES/1373 (2001) may be accessed at http://www.un.org/documents/scres.htm. The term civil enforcement as used in SR V intended to refer only to the type of investigations, inquiries, or procedures conducted by regulatory or adminis- trative authorities that have been empowered in certain jurisdictions to carry out such activities in relation to terrorist financing. Civil enforcement is not meant to include civil procedures and related actions as understood in civil law jurisdictions. Answers 48 | Module 5 Module 5 Answers Answers 1 and 2 In both cases, you should list some of the following institutions and agencies: · Ministry of Justice and Prosecutor General · Ministry of Finance · Home Affairs/Interior Ministry/investigation agencies/police · Central Bank and other supervisors/regulators of the financial sector · Supervisory authorities for the DNFBPs (casinos, corporate service provid- ers, bar associations) · FIU · Customs and Tax authorities In addition, and depending on the depth of the analysis to be undertaken, it may be worthwhile to consider involving: · Parliamentarians · Representatives of professions subject to the AML/CFT framework · Academics · Representatives of civil society · Journalists Answer 3 Your response should mention the professional associations (lawyers, account- ants, and so on) affected by the AML/CFT framework. In addition to these associations (depending on how they are organized in your country), it may be useful to involve individual professionals and practitioners to cope with the operational challenges of AML/CFT requirements. Self-regulatory bodies should fall under the same umbrella. Answer 4 The following pieces of information (the list is not comprehensive) or docu- mentation provide a helpful overview: · Number of STRs transmitted by the FIU to law enforcement · Number of AML/CFT-related indictments based on STRs · Number of AML/CFT investigations launched domestically and those triggered by international cooperation or requests for information · Number of AML/CFT-related international requests for information/ cooperation launched/received by the FIU, police, judges, prosecutors, and/or financial sector supervisors · Number of asset-freezing, seizing, and confiscating-related international requests sent and received Domestic (Inter-Agency) and International Cooperation | 49 Other documents that might contain useful information include the annual report of the FIU, AML/CFT national strategy, the annual reports of the finan- cial sector supervisors, and the amount of assets frozen. Another indicator might be evidenced by the professional experience of the FIU staff and management (i.e., how diverse is it, proportion of staff with back- grounds in law enforcement, transactional and auditing, financial sector supervi- sion, etc.). Answer 5 Excessive bank and professional secrecy is often a key barrier to efficient and timely domestic and international cooperation. FATF Recommendation 4 states: "Countries should ensure that financial institution secrecy laws do not inhibit implementation of the FATF Recommendations." Central to this recommenda- tion is the setting of clear gateways. Answer 6 1) International gatherings are good opportunities to foster international coop- eration through informal meetings. In addition to arranging for adequate domestic coordination before international meetings, countries should consider their delegation's position on agenda items. 2) Upstream coordination is key before such informal contacts are made at international meetings. In the example provided previously, prior dialogue with domestic agencies would have apprised you of the letter in question. 3) It is also surprising that the banking supervisor was not advised during the interagency discussions to share his concerns regarding international coop- eration with his Begunia counterparts. Sharing such information at the domestic level can also help in engaging other countries at higher levels. 4) As for the dinner engagement, and the agreement to discuss international cooperation with regard to specific cases, one-on-one, the decision was risky for several reasons: · The issues at stake are not in the purview of the Ministry of Finance and therefore should not be discussed outside normal channels for mutual legal assistance. · Legally, you should not have access to individual information. · You are not legally a part of the mutual legal assistance process, so inter- ference could jeopardize its success (i.e., specific steps must be followed to ensure that facts and testimony are allowed in a foreign court). Practically speaking, agreeing to bilateral discussions without consulting your colleagues is unwise. 5) Finally, it would be crucial to debrief appropriate counterparts--and pos- sibly higher political levels--on the content of the discussion, including financial supervisors if financial institutions did not fully comply with due diligence obligations. 50 | Module 5 Answer 7 Some of the objectives of enhanced domestic coordination are to · Bolster mobilization, commitment, and guidance at the political level. · Permanently adapt the AML/CFT framework to identified weaknesses, emerging trends, and challenges. · Ensure appropriate circulation of information on individual cases among the relevant authorities (usually a narrower set). · Involve intelligence agencies in the AML/CFT coordination. Answer 8 The FATF standards recommend that the supervisory authorities and the FIU provide feedback to the entities they supervise, on their application of AML/ CFT measures (Recommendation 25); cooperation and coordination mecha- nisms should enable development and implementation of AML/CFT policies (Recommendation 31); and mechanisms for reviewing and monitoring effective- ness of AML/CFT systems should be in place (Recommendation 32). The FATF standards are purposely nonprescriptive on domestic coordination and focus instead on results: this underscores the need to embed domestic coordination tools in the country's institutional framework. The true test, however, is the existence of efficient domestic coordination. The onus is on countries to evi- dence that. Answer 9 Your response will likely mention some of the following tools: annual reports, specific confidential reports to institutions reporting on STR patterns, dedicated seminars, bilateral feedback--this may be better suited for minimum feedback on specific STRs and the collective sharing of experiences. Answer 10 Because it is at the heart of AML/CFT expertise and information sharing, the FIU is best suited to conclude memoranda of cooperation. Answer 11 The FATF standards do not specifically require this. However, a national strat- egy adopted by the government becomes a public document; it can then be an effective tool for fostering interagency coordination and dialogue with the private sector and other stakeholders. Of course, it is not a panacea. Answer 12 Your response should be in the following list: · Elaborate national objectives and priorities. · Identify and delegate the new responsibilities/accountabilities that new national objectives/priorities will create. Domestic (Inter-Agency) and International Cooperation | 51 · Describe how progress toward the achievement of the objectives/priorities and the impact of objectives/priorities will be measured. · Delegate specific responsibility for interagency coordination and interna- tional cooperation. A written national strategy can ensure coordination by delegating the respon- sibility, defining the various roles institutions and stakeholders should play, setting guidelines for coordination, and defining the method for measuring effectiveness. The strategy can include information on the following: the frequency for strategy assessment, revision, and by whom; identification of specific priorities; alignment of resources and tools; measures of achievement; awareness raising; and political mobilization. Other mechanisms can be used to achieve these objectives--the AML/CFT legislation itself, or even more informal mechanisms--provided they are credible. Answer 13 The FIU is the only agency that collects and analyzes STRs from all entities. Thus, it has the expertise to analyze and understand reporting patterns of finan- cial institutions. The FIU should share information with supervisory authori- ties of the various sectors in money laundering and other criminal activities, so supervisory agencies can fine-tune their risk-based framework, compliance poli- cies, and procedures, and ensure the onsite inspection program is designed and prioritized accordingly. In addition, the FIU should keep supervisory authorities informed on the reporting patterns of the entities they supervise, so that inspec- tion could be done more efficiently. Answer 14 Inspectors may gather information on some transactions, which have not been reported to the FIU but are useful to the FIU because it indicates how reporting entities determine whether certain transactions are suspicious (or not). In addi- tion, as focus turns more on "internal controls," inspectors can inform the FIU on the compliance efficiency in financial institutions--thereby helping the FIU to better target the financial institutions with which it should engage in a more in-depth dialogue to improve suspicious transactions reporting. Answer 15 Your three institutions should be in the following list: FIU, Justice Department, prosecutor general, courts, Ministry of Finance, any of the various law enforce- ment agencies, financial and non-financial sector regulators, and the central bank. Answer 16a The answer is B. There is no standard model recognized as the best for all countries; each country has to make its own choice, depending on its own cir- cumstances. However, central to success is having the FIU spearhead domestic coordination and stress multidisciplinary features and staffing. 52 | Module 5 Answer 16b The answer is E. Answer 17 Usually individual information is gathered by and circulated within the FIU, the police, other law enforcement agencies, the prosecution, and the supervi- sors (mainly of the financial sector). The Customs Authority is privy to relevant information concerning suspicious transactions and can be a major asset to the AML/CFT framework. In some countries, central banks (through cross-border transactions or the freezing of assets) may also have important information that should be shared, but measures must be taken to protect confidential informa- tion; some of these measures are banking secrecy and prosecution secrecy. In any event, procedures for information sharing need to be clear and reasonable. There are also jurisdictions with informal channels of communication and their benefits should not be underestimated. It is critical that the fundamental rights of individuals are not violated and that abuse or misuse of information is punished. Such agencies as the Ministry of Finance, the Ministry of Foreign Affairs, and supervisory bodies outside the financial sector are less likely to have access to individual information--but can participate in the policy-oriented exchanges of information and experience. Answer 18 The following list could provide a useful reference: · The total number of MOU signed with foreign counterparts--for the exchange of information · The total number of requests for international assistance received from foreign counterparts · The total number of requests for international assistance sent to foreign counterparts · The total number of prosecution cases triggered by analysis and/or informa- tion, obtained from foreign counterparts · The average time (number of days) it takes for the FIU to respond to requests from international counterparts Answer 19 The following list could provide a reference: · The total number of requests for international cooperation received by the FIU, which led to domestic inquiries directed to the financial sector supervi- sors or the police · The total number of international requests for information received by the banking supervisor, which led to domestic inquiries directed to the FIU Domestic (Inter-Agency) and International Cooperation | 53 · The total number of regulator to regulator requests for assistance launched by the banking supervisor, and directed to counterparts in countries where there are branches or subsidiaries of domestic banks · The comparison of the distribution of all MOU signed by domestic AML/ CFT entities with the structure (geographical dimensions) of international transactions (ins and outs) Answer 20 Jurisdictions with relatively liberal tax regimes do not want their foreign inves- tors to be concerned that their financial information can be communicated to authorities in other countries, which may then be used to prosecute cases of tax evasion. Such countries put restrictions (spelled out in MOU on informa- tion, which could be tax related). This approach can be legitimate but has been abused by some jurisdictions as a means to withhold information that could be used for criminal investigation purposes. It is critical that authorities make it very clear what the criteria and decision-making processes are for sharing information at the international level, when there are tax-related restrictions. Restrictions should not impede the sharing of data needed for the prosecution of criminal cases having to do with financial activities. Answer 21 Those are the Vienna Convention (UN Convention against Illicit Traffic in Nar- cotic Drugs and Psychotropic Substances [1988]), the UN Convention for the Suppression of the Financing of Terrorism (1999), and the Palermo Convention (The UN Convention against Transnational Organized Crime [2000]). In addi- tion, even though it is not mentioned in the FATF Recommendations, the UN Convention against Corruption (2003) is another key international instrument to be signed, ratified, and integrated into the domestic legal framework. Answer 22 Those are the prevention stage between regulators, the prevention and detec- tion stage between FIUs, the investigative stage between police and law enforce- ment, and the prosecution stage in the context of mutual legal assistance. Answer 23 Each country has its own mechanisms and institutions to provide international assistance, be it mutual legal assistance or through other forms. Depending on the country setting, the institutions involved might not be the same. For instance, in countries where the FIU is involved in supervising the compliance of financial institutions with AML/CFT requirements, it can be the counterpart of financial supervisors (banking/securities/insurance commissions) from other countries. Clarity on the "entry points," on the mandates of the various bodies and proce- dures for international assistance, is key to facilitating requests from other coun- tries and ensuring effectiveness by streamlining the bureaucratic process. 54 | Module 5 Answer 24 False: The scope of the FIU mission can have a bearing on the effectiveness of the coordination efforts, but what is most important is the integration of the functions and the ability to rely on cross-sectoral and interdisciplinary expertise. A large sphere of activity of the FIU can create tensions with other agencies at the expense of coordination and sharing of experiences. The Bank Supervision Agency should generally be responsible for supervising bank com- pliance with AML/CFT requirements; however, the FIU should work with the bank supervisory agency to assist in training bank supervisors and to provide information, if necessary. Answer 25 False: The FIU has a leading role in providing feedback to illustrate the impor- tance of STRs to reporting institutions and provide guidance on AML/CFT trends. But feedback from the police and the Justice Department/prosecu- tor's office is also central, as the final objective of AML/CFT is to incarcerate criminals. Answer 26 True: An AML/CFT strategy can be a useful tool at the domestic level to foster the fight against ML/FT and, in particular, to support domestic coordination efforts, but it is only best practice and not an FATF Recommendation. However, such an approach is a good benchmark to assess other options, increase aware- ness, improve domestic coordination, and measure progress. Answer 27 False: Involving and associating the private sector is central to the effectiveness of AML/CFT efforts, as they strongly depend on private sector acceptance of the "partnership spirit" underlying it, particularly where reporting mechanisms are concerned. Taking into account its views and keeping track of implementa- tion issues is central. Of course, this may lead in some instances to debates or disagreements, but they are usually better solved by acknowledging them than by trying to hide them. Answer 28 True: Measurement of coordination is indeed difficult, as it is a qualitative endeavor. However, several indicators and proxies can help gain an objective assessment. Answer 29 False: The UN Convention for the Suppression of the Financing of Terrorism is another key instrument. Other key multilateral instruments that have a regional basis but provide very important references are conventions adopted by the Council of Europe and the Organization of American States. Domestic (Inter-Agency) and International Cooperation | 55 Answer 30 False: The spirit of the FATF Recommendation 40 is to go beyond counterpart- to-counterpart international assistance. When legal restrictions are placed on such exchanges of information, it is expected that the agency in country Z will help the requesting agency use appropriate gateways to gain assistance. Answer 31 False: Participating in international cooperation is essential to each country's AML/CFT efforts, as AML/CFT schemes are more often than not cross-border transactions. Answer 32 True: Formal international cooperation is of course important, in particular when it comes to mutual legal assistance. However, there are other informal means of cooperation, based on trust and bilateral relationships, that also facili- tate such cooperation. Answer 33 False: Although professional associations are able to disseminate information en masse to their constituencies, direct contact with practitioners is indispensable. In addition, cross-sector dialogues bring two important benefits: benchmarking between sectors (experience gathered from the banking sector can be shared with others) and experience sharing. Cross-sector exchanges increase the sense of common ground and collective mobilization. Answer 34 False: This is a key monitoring tool, but success in managing international cooperation also stems from the ability and willingness to request support and information from abroad and the information provided has value. Answer 35 False: As in other endeavors, staff exchanges are very useful in fostering coop- eration and dialogue. It helps in improving mutual understanding--and this is particularly relevant in context of significant differences in culture--in devising gateways and in promoting the adoption of new ways of doing business. How- ever, confidentiality issues must be considered. Money laundering and the financing of terrorism are global problems that not only threaten a country's security, but also compromise the stability, transparency, and efficien- cy of its financial system, consequently undermining its economic prosperity. The annual global estimate for money laundering is more than $1 trillion, valued in U.S. dollars. Efforts to counter these activities are known as anti­money laundering and combating the financing of terrorism (AML/CFT) programs. The Combating Money Laundering and the Financing of Terrorism training program was developed by the World Bank's Financial Market Integrity Unit, with support from the governments of Sweden, Japan, Denmark, and Canada. The program will help coun- tries build and strengthen their AML/CFT efforts by training all relevant staff in both the public and private sectors, such as staff in financial intelligence units, financial supervisory authorities, law enforcement agencies, and financial institutions. The training guide's modules are: Module 1: Effects on Economic Development and International Standards Module 2: Legal Requirements to Meet International Standards Module 3a: Regulatory and Institutional Requirements for AML/CFT Module 3b: Compliance Requirements for Financial Institutions Module 4: Building an Effective Financial Intelligence Unit Module 5: Domestic (Inter-Agency) and International Cooperation Module 6: Combating the Financing of Terrorism Module 7: Investigating Money Laundering and Terrorist Financing The modules cover all the Financial Action Task Force on Anti­Money Laundering's Forty Recommendations and Nine Special Recommendations, with the original texts. Each module is targeted at a specific group of professionals in a jurisdiction's AML/CFT regime, although they may also benefit from gaining wider knowledge through the other modules included in this program. Each module provides questions at the beginning and end to assess how much has been learned. The training guide contains numerous case studies, discussions and analyses of hypothetical and actual examples of money launder- ing schemes, and best practices in investigation and enforcement, which will help readers fully understand the implementation of successful AML/CFT programs.