AML/CFT Regulation in Light of Global AML/CFT Regulation in Light of Global Financial CrisisFinancial Crisis

Presented by Presented by Muhammad BaasiriMuhammad Baasiri

SIC SecretaryUS-MENA PSD Chairman

MENAFATF 1st Year President

11stst Annual Compliance & AML Seminar Annual Compliance & AML SeminarRiyadh, Kingdom of Saudi ArabiaRiyadh, Kingdom of Saudi Arabia

2424th,th, 25 25thth March 2009 March 2009

Reasons behind Global financial Crisis Impact on AML in light of Global financial Crisis Challenges facing AML in Light of Global Financial Crisis

Accountability for the Global Financial Crime, Rethinking/redefining of AML

Optimal Allocation of Human & Monetary Resources

Cooperation between Developed & Developing countries

Adequate priority to AML ProgramRegulatory framework to prevent future financial

crisis Conclusion

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OutlineOutline

1) Collapse of US-sub-prime mortgage market2) Poor judgment by borrowers and/or lenders, 3) Speculation & overbuilding during the boom period, 4) Complex financial products & Risky mortgage products, 5) Inaccurate Credit Rating6) High personal and corporate debt levels, 7) Central Banks’ restrictive monetary policies in a number

of countries, 8) Governments regulation or the lack of9) Stock market volatility, downward currency values10)Moral Hazard, abundance of greed, & corruption

Reasons behind Global financial Crisis

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1) Significant investment in AML systems and controls due to increase in transaction monitoring and staffing

2) High Demand for forensic services, fields of fraud & litigation

3) More risk-based AML programs, 4) Restructuring AML regime by centralization or

outsourcing functions5) Advanced AML software systems

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Impact on AML/CFT in light of Current Financial Crisis

I. Accountability for the Global Financial Crime, Rethinking/redefining of AML

II. Optimal Allocation of Human & Monetary Resources

III. Maintaining International CooperationIV. Adequate priority to AML ProgramV. Regulatory framework to prevent future

financial crisis

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Challenges facing AML in Light of Global Financial Crisis

Banking Regulators; who are guilty of systematic failure to spot the early signs of dangerous dependence on inter-bank funding, heavy exposure to mortgage debt, soaring house price inflation, & complex financial products

Hence The Role of banking Regulators; To be prudent by protecting depositors, To monitor systemic risk reduction of disruption from adverse trading

conditions for banks To Avoid misuse of banks for criminal purposes (securities fraud, stock

manipulation schemes, embezzlement by stockbrokers , corruption, misuse of power & laundering the proceeds of crime)

To Protect banking confidentiality (even from Insider trading) Credit allocation - to direct credit to favored sectors

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I. Accountability for Global Financial Crisis

Corporate CEO’s; guilty of Greed that clouds judgment (excessive pay, bonuses, & preferred shares)

Credit Rating agencies; who faced inherent conflict of interest with many of their clients issuing securities rated by their analysts,

Investors; guilty of wanting all with no leverage to back up their debts

Lenders: failed to make sure borrowers had a job or income to cover for their loans

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I. Accountability for Global Financial Crisis (continued)

In light of financial Crisis, comes the need to have a broader understanding of money laundering, what constitutes illicit money, how they are concealed, & introduced into the financial system, which channels are currently used, how they are invested

To expand AML predicate offenses to include all the designated categories of offences such as Insider trading, market manipulation, corruption & bribery

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Need to Redefine AML

Global Economies are in recession, consequentlyconsequently Limited, Depleted & Expensive financial & human

resources available for AML, hencehence Need to intelligently allocate resources in AML regime,

throughthrough Outsourcing or centralization of AML functions or or

throughthrough Training, Raising Awareness as criminals are constantly

evolving and and Increasing sophistication of law enforcement

professionals such as AML experts, fraud examiners, compliance officers, forensic accountants, experienced professionals in money laundering investigations

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II. Optimal Allocation of Human & Monetary Optimal Allocation of Human & Monetary ResourcesResources

Despite the lack of enough trust between countries and regulators, they should be looking at:

Exchanging intelligence, expertise & lessons learned, Stepping up assistance to jurisdictions that are struggling

to establish their regimes, Implementing streamlined procedures in freezing,

confiscating, & returning the ML assets Helping develop technical assistance programs Forge consensus on global strategies that can adequately

serve the different needs of the global market?10

III. Maintaining International Cooperation

Banks and other financial institutions have to take a more holistic approach to AML,

Improved controls – Existing and expected evolving regulatory requirements demand better financial controls

Need to be more proactive to identify and catch illicit funds

High Fraud level in economic crisis, places additional pressure on banks & financial institutions to have transparent governance, adequate screening of clients, proper KYC forms, and AML regime in place

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IV. Awarding adequate priority to AML Regime

Implement New regulatory framework to prevent future similar financial crisis

Establish appropriate preventive measures to mitigate against such huge losses, reform-measures

Effective and comprehensive reform of the international monetary & financial systems

Enhanced regulation through adequate standards, transparency, accountability & oversight

Improving risk management practices Improving valuation standards of complex financial

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V. Preventive Regulatory Framework

During economic downturn, adequate screening systems become more important . Fraud tends to gather pace in a credit crunch & has much greater impact during crisis.

With white collar crime increasing and regulators handing down penalties against both companies and individuals for anti-money laundering lapses, the need for systematic, rigorous screening of customer databases has never been more important.”

Conclusion

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Thank You

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