THE COUNTRIES of eastern and southern Africa pose two particularly serious challenges for the Financial Action Task Force (FATF), the world’s leading anti money laundering agency, according to Alain Damais, the organisation’s executive secretary. In an interview with the Money Laundering Bulletin, he also discussed developments in money laundering typologies, the progress made by China towards becoming an FATF member and EU legislation designed to thwart laundering.

Mr Damais was speaking shortly after the conclusion of a plenary meeting of the FATF and the Eastern and Southern Africa Money Laundering Group held February 15-17 in Cape Town, under the presidency of South Africa. It was the first meeting of its kind, with more than 400 delegates from 44 countries and territories in attendance “to discuss ways to build effective anti-money laundering and counter-terrorist financing infrastructures in emerging economies”, according to a text issued after the session. Subjects under discussion included the need for better customer identification, ways to stop the physical cross-border transportation of criminal proceeds, and the scope to put stronger anti-money laundering/counter-financing of terrorism measures in place in cash-based economies.

Mr Damais said that the first big challenge for the east and southern African region was the lack of resources. “Fighting against money laundering requires a number of resources which are not always available in these countries,” he said. Resources were required “in terms of expertise, in terms of financing, in terms of hardware, software – there are all kinds of systems needed to put in place a reliable system and to create competent authorities.”

This was a problem in other parts of the world, he agreed, “but it’s especially difficult for countries in this region that are struggling in their economic development and which naturally have other priorities such as education, health care and so on.”

In such situations the FATF counted a great deal on the generosity of donors to provide technical assistance and also technical resources, whenever possible, to help the countries put in place the necessary authorities, he said.

Mr Damais said the second serious problem was corruption. “Again this exists everywhere in the world but we think it exists in particular in this region and this is a major source of concern for us.” It was also, he said, a pressing concern for the authorities in those countries themselves. “They realise the need to fight corruption effectively in order to have a better regulated financial sector, in order to have good judicial authorities, good police authorities, an efficient system to ensure the rule of law and ensure in particular the fight against money laundering and terrorist financing,” he said.

One way to counter corruption throughout the financial sector, he indicated, was to demonstrate to a country the benefits of cooperating with others and having an anti money laundering regime in place. “The beauty of an anti money laundering policy is that it helps you not only to fight money laundering itself but also to trace and fight corruption more generally. These two things re-inforce themselves. They both want the same goals and there is a cross-benefit which is quite interesting for this region,” he said.

On more general anti money laundering matters, Mr Damais said the FATF produced a new programme on typologies every year. These programmes were designed to identify new trends and methods developed and used by terrorists and money launderers to launder their proceeds or to secure their financing. “It’s an ongoing project that we work on every year and this time it will be published around June. It’s a general report – what we try to do is to gather expertise from the law enforcement communities in the FATF member countries based on their experience and their current investigations and find out what new trends and methods are being used by criminals.”

Typically the typology reports focus on actual cases where criminals have attempted to hide or transfer funds in specific industries and in specific regions so that any general or local weaknesses can be identified and broader lessons for the world’s anti money laundering forces learned from them. “But we work also on different topics outside of methods and trends and for this year our programme includes work on trade-based money laundering and on the misuse of corporate vehicles and trusts. We are examining the use of legal entities and legal arrangements, such as trusts, in the fight against money laundering,” Mr Damais said. The FATF was also doing research into the money laundering vulnerabilities of new payment technologies and complex money laundering schemes “from a South American perspective.”

The agency will publish separate reports on these projects later in 2006.

At this stage however the FATF experts were reporting “nothing particularly new outside of what has been published in the last 18 months since we had a report on the cross-border transfer of money – the wire transfer issue and alternative remittance systems like Hawala and others,” he said. Mr Damais added however that “we have identified a number of new threats in recent times though I can’t say more now about what we are working on.” (At Cape Town the FATF reported that it had clarified its Special Recommendation relating to non-profit organisations, especially charities, and now offered “a range of concrete measures that countries should out into place to ensure that their non-profit sectors are not abused by terrorists.”)

Mr Damais said that China had made “very good progress” last year when it served as an official observer at the FATF as part of its ambition to become a full member. The next step towards satisfying the FATF entry requirements would be a mutual evaluation which Mr Damais said would be conducted “later this year.”

First there would be a revision of the Chinese legislation on money laundering and terrorist financing. “China is in the process of passing a new law in this area and there will be several deliberations by the People’s Congress between now and June. Once this is passed we expect to be able to begin the process of mutual evaluation and then China could become a full member of the FATF. I’m sure everyone is very much looking forward to that,” he said.

India also reaffirmed an earlier commitment to join the FATF at the Cape Town meeting. The FATF president Kader Asmal is to visit the Indian authorities “soon.”

Mr Damais noted that there were now only two names on the FATF’s list of Non-Cooperative Countries and Territories (NCCT)- Myanmar and Nigeria. These are considered to be locations “with inadequate legal regimes to support the international community’s efforts to fight money laundering.” At one time there was a score or more of such countries and territories and we asked Mr Damais if the NCCT had now broadly completed its work.

“The FATF identified in 2000 and 2001 and 2003 a number of countries that were deficient in their fight against money laundering and that in turn posed problems of cooperation world-wide,” he said. “But now, all countries except two have made the necessary changes to their laws and regulations and created new authorities and new gateways for international cooperation over the past few years and so progressively all but these two have been de-listed. The FATF is encouraged by the progress Nigeria and Myanmar have made but we are still working with them to ensure that they too will put in place the necessary reforms that we have requested,” he said.

Mr Damais said there was no plan at present for any further review of countries for this purpose “but we emphasis the need to put into place the new 2003 standards world wide.” The FATF in Paris was working very closely with the FATF regional bodies to ensure this, he said.

Commenting on the FATF’s recent mutual evaluation of Australia, Mr Damais said this had shown both strengths and problems. “I know that the Australian authorities are working on these problems and that they have reacted very very quickly,” he said. The necessary draft legislation to remedy the problems identified was put out for consultation last December and Mr Damais said he expected it to pass through smoothly in the next few months or year “so that Australia can comply fully with the FATF 40 plus 9.”

On the European Union’s (EU) third directive on Money Laundering, Mr Damais said that the FATF was not specifically assessing this legislation per se (in italics). “We will assess all of the EU member states. We will find out sooner or later whether the directive is in line with the standards but I understand that priority number one for the European Commission was to ensure that the Third Directive was fully in line with the FATF 40 plus 9.”

He said there were no gaps in the EU legislation that he was aware of. “I think that the EU has been very keen on making sure that the Third Directive is fully in line with the FATF recommendations and I guess it is the case that it is, though I stress we are not specifically assessing the directive,” he said.