International Monetary Fund: Striving To Promote Financial Stability And Integrity

IFC: Over the last two decades, the IMF has helped shape domestic and international policies against money laundering and terrorism financing. What key initiatives have you introduced?

RWB: The Fund’s work on Anti Money Laundering/ Combatting the Financing of Terrorism (AML/CFT) has evolved considerably from its origins in the early 2000s. This evolution reflects the growing recognition of the importance of financial integrity issues for the Fund’s core mandate. The AML/CFT work programme is grounded in the Fund’s mandate to promote economic and financial stability and has been guided by the specific needs and concerns of the Fund’s membership.

There are five key aspects of this work that warrant particular mention: First, since 2011, financial integrity issues have been discussed in the Fund’s Article IV consultations—our generally annual monitoring of countries’ economic and financial policies—and in our lending work, in both cases when assessed to be macro-critical for the particular economy. As a result, Fund staff raises AML/CFT and broader financial integrity issues in over 100 consultations with members each year, and up to 17 Fund-supported programmes have included conditionality on financial integrity issues. Second, timely and accurate input on AML/CFT is provided in every assessment under the IMF’s financial sector assessment program. Third, Fund staff also conducts up to two country assessments per year against the Financial Action Task Force (FATF) standard. Fourth, our extensive capacity development work has supported over 120 countries over the years. And fifth, AML/CFT issues also are addressed in the context of other important Fund policies such as the Fund’s work on corruption and governance, issues related to correspondent banking relationships, Islamic finance, and Fintech.

IFC: The IMF promotes transparency to combat illicit financial flows. Critics believe that providing public access to financial disclosures and beneficial ownership is a risky move. How do you answer accusations of the abuse of privacy? And what are the benefits of public access?

RWB: In promoting transparency initiatives to tackle illicit financial flows, it is important to strike the right balance between transparency and protecting privacy. Our advice to our members is to seek that balance based on each country’s specific context and the benefits of public access.

It is important to stress that public access does not imply publishing the entire content of the financial declaration or all the information related to the beneficial owner. Countries can choose to limit the type of information that is publicly available. Certain types of information can remain confidential and should only be available to those who need the information to exercise their legal responsibilities. For example, banks would need access to more information to verify customer information than the general public would, and law enforcement authorities would have access to all information to carry out investigations.

Ongoing international efforts to strengthen frameworks for international cooperation and transparency through exchange of information have been carefully implemented to ensure that countries continue to meet applicable standards on confidentiality and data safeguards. For example, there are processes in place to confidentially exchange information to combat international tax evasion, such as the development of a Common Reporting Standard (CRS), through which jurisdictions are required to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis. The mere public awareness that these exchanges have occurred and their magnitude has been a critical step toward motivating tax compliance to prevent tax evasion.

There are other benefits of public access. For example, public access of beneficial ownership information is a key tool to foster transparency and accountability by letting the public and other businesses know who they are ultimately dealing with, and to mitigate money laundering, corruption, procurement fraud and other crimes. It also allows for cross-checking of beneficial ownership data with the publicly available data, making it easier for banks and other businesses to comply with their legal customer due diligence obligations. And in countries where the collection of beneficial ownership information currently falls mostly on the financial sector and/or on trust and company service providers, a public registry should reduce the number of ad-hoc requests for information from domestic or foreign authorities that these businesses need to respond to.

IFC: Do you think believe that technological innovations such as digital transactions and cryptocurrencies are going to make it more difficult to track illicit financial flows?

RWB: It depends. Technological innovations, including in the financial technology (Fintech) space, provide both opportunities for and risks to the integrity of the financial system. On the one hand, there are instances where it is more difficult to trace illicit financial flows in virtual assets. This is because some have anonymity-enhancing features, and virtual assets-related activities are, for the most part, not conducted face-to-face. All virtual assets have the potential for near instantaneous global reach, decentralisation and fragmentation of services. On the other hand, when compared to cash, some cryptocurrencies (which are also a form of virtual assets) offer a potential for greater traceability because transactions are recorded on a ledger.

The FATF AML/CFT standard includes several components to address the risks posed by virtual assets, including measures to ensure that appropriate transparency and traceability is maintained. For example, virtual asset service providers are required to identify their customers and the beneficial owner of virtual assets, and to share some of that information with their counterpart in a transaction (this is commonly referred to as the “travel rule” and is akin to existing wire transfer payment information requirements for banks).

Regulatory and supervisory technology solutions (RegTech and SupTech) can also provide useful tools to mitigate virtual assets-related financial integrity risks, including by facilitating the traceability of transactions. The Fund is actively engaging with the FATF and other stakeholders on these issues and closely monitoring developments in this area.

IFC: It is expected that international financial institutions and governments have the ability to measure illicit financial flows but how realistic is this? Can illicit financial flows actually be measured with any degree of accuracy?

RWB: Illicit financial flows are inherently difficult to measure given their very nature. Also, illicit flows comprise multiple types of criminal activities: i.e. funds stemming from illegal acts (e.g. corruption, drug trafficking), transfers that are themselves illegal (e.g. tax evasion), or funds that are used for illegal purposes (e.g. terrorism financing). Illicit flows can also be mixed with trade and illicit proceeds can be hidden as goods through trade-based money laundering. Unfortunately, not one methodology will give an unambiguous estimate of these flows. Compounding all of this is the fact that criminal actors make deliberate efforts to hide these flows from regulatory authorities.

The Fund supports ongoing efforts to strengthen measurement of these different types of flows, including the work of the United Nations Office on Drugs and Crime/United Nations Conference on Trade and Development (UNODC-UNCTAD) Expert Group in addressing data gaps related to illicit flows. Related to this, the Fund has provided technical assistance to countries on how to statistically record the recovery of looted assets and unaccounted wealth. The Fund has also led work in FATF to produce guidance that assist countries in collecting the data that they need to understand AML/CFT risks and to measure the impact of mitigation measures.

IFC: What is your reaction to claims that the enforced regulations in international financial centres have simply increased the costs of operation, so limiting capital flow?

RWB: Weaknesses in AML/CFT regimes increase the cost of operation and can result in limiting access to global financial markets, increasing pressures on correspondent banking relationships, and undermining government revenues.

Maintaining financial integrity is critical to global financial stability. Ensuring consistent and effective safeguards in the financial system are important to protect against the laundering of criminal proceeds or the funding of terrorists and proliferators of weapons of mass destruction.

What we see is that even large international financial centres have gaps in their AML/CFT regimes and face significant challenges in effectively preventing criminals from using their financial systems to move their ill-gotten proceeds, as recently highlighted by the FinCEN files leaks, for example.

Given the role that financial institutions play as gatekeepers in holding and moving financial flows worldwide, international financial centres have to better protect their reputations and, therefore, capital flows by implementing strong governance, financial supervision, and due diligence, as well as strengthening their frameworks for international cooperation and transparency through exchange of information.

IFC: How closely does the IMF work with organisations such as the FATF, UN and the OECD?

RWB: The Fund collaborates very closely with other international organisations to tackle illicit financial flows and combat tax evasion which are complex, and cross-border problems require concerted global efforts.

Depending on the needs and mandates of our partners, the Fund works with FATF, FATF-style regional bodies, the Egmont Group, relevant UN bodies (e.g., UNODC, United Nations Counter-Terrorism Committee Executive Directorate (UNCTED), UN Committee of Experts in Tax Matters, the Bank for International Settlements (BIS), the Financial Stability Board (FSB), OECD (including the Global Forum and Inclusive Framework), and the G20 Anti-Corruption Working Group, and we actively contribute to relevant international forums, including the Platform for Collaboration on Tax, established by the Fund, UN, OECD and World Bank.

IFC: What is the role of donor agencies and what benefits can they offer?

RWB: Much of the AML/CFT capacity development assistance that we provide to our members is financed through a donor trust fund, generously supported by Fund members. Donors play a critically important role to assist our membership. The demand for capacity development exceeds our resources and it is important to closely cooperate with other donor agencies.

Donor coordination takes place at the country level, but is just as important at the regional level, for example, through FATF-style regional bodies. Fund staff also actively participates in and promotes donor coordination, such as through its Medium-Term Revenue Strategy (MTRS) approach to capacity building in relation to domestic revenue mobilisation, which often includes a focus on strengthening a country’s international tax capacity.

IFC: Have there been any specific success stories as a result of your initiatives?

RWB: Every four to five years, the Fund’s Executive Board reviews the Fund’s AML/CFT work and provides our strategic direction. Our reviews are publicly available on our website, and I would encourage your readers to read the latest review from 2019. Among other information, the reviews provide examples of our work to support our members in strengthening their AML/CFT frameworks, including success stories.

For example, with the Fund’s support, several member countries have made significant reforms to their AML/CFT frameworks and, in some cases, we have been able to help some of our members to successfully address strategic AML/CFT deficiencies identified by the Financial Action Task Force as part of FATF’s grey list, which has contributed to the members’ exit from the grey list (such as Afghanistan, Iraq, Kuwait, Nepal, and Sudan). Staff also provided capacity development to help countries implement measures under Fund-supported programmes (e.g. Iraq, Tunisia, and Ukraine) and surveillance advice (e.g. Angola, Oman, and Qatar), as well as measures to ease correspondent banking relationship pressures (e.g. Angola, Guatemala, Jamaica, and Sudan).

Another notable development as far as the Fund is concerned is increased awareness. There needs to be an increased realisation that the lack of financial integrity not only enables criminal activities, but also has a negative impact on the economy, inflicting real costs on society and businesses. Unfortunately, in some cases, countries realise this too late; for example, when weakness in AML/CFT frameworks in a country results in pressures on their correspondent banking relationships. Our focus in such cases is to provide our members with the necessary policy advice to improve the legal framework and the effectiveness of their AML/CFT system.

IFC: What new initiatives are in the pipeline and when will these be implemented?

RWB: The current COVID-19 crisis certainly has an impact on the Fund’s work, and some of the current adjustments may become structural. For example, with Fund staff and many government authorities working from home, we have had to leverage the rapid improvements to teleconference facilities for virtual capacity development delivery. Over time, technological efficiencies might increase the number of member countries that we can assist. We are also developing online learning courses on AML/CFT to widen our reach.

The current crisis has also exposed new challenges that countries face. The need for emergency Fund financing is urgent for many of our members, and we want our members to spend when needed. However, at the same time, we believe that governance and transparency measures remain critical for quickly and effectively disbursing emergency funds, so we have asked our members to commit to a series of measures that can help ensure accountability and transparency in the use of these funds.

An important set of commitments in this regard is related to our request to members to make publicly available the names and the beneficial ownership information of the companies who have been awarded government procurement contracts for COVID-19-related spending. Our message has been clear, “spend what you can but keep the receipts” to ensure that the funds are properly used and do not fall into the hands of corrupt criminals. As a result, some countries have already published this information. In addition, we are also providing technical assistance to some of our members who need help implementing these commitments, including to strengthen the availability of beneficial ownership information available in their country.

Related to this, we are also working on a publication on beneficial ownership, which will include a technical assistance module to assist member countries and technical assistance providers to effectively implement these beneficial ownership requirements.

IFC: Thank you for agreeing to this interview. Do you have any other comments?

RWB: Thank you for the opportunity to share the IMF’s AML/CFT work with your readership.

Rhoda Weeks-Brown
Rhoda Weeks-Brown is General Counsel and Director of the IMF’s Legal Department. She advises the IMF’s Executive Board, management, staff and country membership on all legal aspects of the IMF’s operations, including its lending, regulatory and advisory functions. Over her career at the IMF, she has led the Legal Department’s work on a wide range of significant policy and country matters. She has written articles and many IMF Board papers on all aspects of the law of the IMF and co-taught a Tulane University seminar on that topic. Ms. Weeks-Brown has also served as Deputy Director in the IMF’s Communications Department, where she led IMF communications and outreach in Africa, Asia and Europe; played a key role in the transformation of the IMF’s communications strategy; and led IMF strategic policy communications on key legal and financial topics. Ms. Weeks-Brown has a J.D. from Harvard Law School and a B.A. in Economics (summa cum laude) from Howard University. Before joining the IMF, she worked in Skadden’s Washington DC office. She is member of the Bar in New York, Massachusetts and the District of Columbia and a member of the Supreme Court Bar. She is also a member of the Committee on International Monetary Law of the International Law Association (MOCOMILA). Ms. Weeks-Brown was named one of the top 27 Global General Counsels (2020) by the Financial Times, and one of the top 5 General Counsels in the area of Promoting Ethical Standards. She serves on the Board of TalentNomics, Inc., a non-profit organization focused on developing women leaders globally.