FATF Ending Impunity: Creating a level playing field by enforcing the conventions we have
Speech by David Lewis FATF Executive Secretary
Tackling Corruption Together Conference
London, 11 May 2016
Money laundering: a big problem. That was the title of a top secret report I saw a few years ago. What it contained though was hardly a secret and didn't come as news to anyone working to combat it.
October 2012. I'm working at the Treasury. No10 is thinking about the UK Presidency of the G8. Professor Collier, author of The Bottom Billion, is advising the PM. The PM asks all government departments for bullet-proof ideas to tackle illicit flows, within 3 weeks. If bullet-proof ideas existed they would have been proposed already. No takers. Two years earlier I had a conversation with Robert Palmer of Global Witness over a drink in the Cambridge Symposium on Economic Crime; about our fierce agreement on the need for enforcement of the information in company registries and to go further, to find who really owns and controls them.
But in the following two years, as FATF reviewed and strengthened it standards I knew there was no agreement between countries on any one way of achieving this. Yet the ambition to reveal the true owners of companies was unquestionably the right one. So I had another conversation with Robert and while Global Witness built up support for the idea, including commissioning compelling research, I sold action on beneficial ownership to senior officials advising the PM at home and then with them to the White House and other countries.
A lot of hard work later, followed the announcement in Loch Erne to country action plans on beneficial ownership and the U.K. Announcement of a public registry. Since then we have seen the EU announce registries, the G20 commit to high level principles on beneficial ownership, the Global Forum on Tax adopt the FATF concept and definition of beneficial ownership, and most recently countries like South Africa and Australia announce consultations on public registries.
So what I am about to say may come as a surprise. Successfully combating money laundering is about a lot more than announcing public registries. This must be part of a much broader set of actions designed to prevent, detect and disrupt serious crime and terrorist financing.
Laws and regulations, and yes initiatives like public registries, risk becoming window dressing on politicians CVs.
If they are not effectively implemented and enforced they are pointless; they are burdensome bureaucracy which implemented badly make things worse – resulting in financial exclusion or the space for civil society being closed down.
But you can't enforce laws and regulations you don't have.
You can't investigate corruption without financial intelligence and financial investigators trained to use it.
And investigations quickly run into the ground without effective cooperation and information sharing; between agencies, across borders and with the private sector.
Through FATF, 198 jurisdictions have now committed at the highest level to implementing the FATF recommendations to combat money laundering, terrorist and proliferation financing.
As a result, most countries now have the legal, regulatory, institutional and operational tools to deprive criminals and terrorists of their funds.
However, FATF is now assessing whether countries are implementing and enforcing these measures effectively.
In short, it is assessing whether any of this makes any difference.
There are many examples of good practice but they are patchy and no one country is effectively implementing everything. Many in fact are failing in a number of fundamental areas, including but not limited to ensuring the transparency of beneficial ownership.
The enforcement activity shown on this slide is just one example, public enforcement of the requirements on banks is dominated by the US with few examples from other countries.
FATF shines a light on these inconsistencies and weaknesses by publishing its evaluations and naming and shaming the worst offenders.
But that is not enough. Ultimately it is individual governments that need to implement and enforce these standards.
Remember FATF is not just assessing whether countries are exchanging a specific piece or set of information for a narrow purpose, like tax. It is assessing everything a country is and should be doing to effectively combat the full range of serious criminal activity the FATF Recommendations cover.
The Summit tomorrow is a rare opportunity to shine a bright light on poor implementation and enforcement, and for governments to commit again to taking effective action. And I commend the work of Transparency International in helping to do this.
The Summit is also an opportunity for more window dressing. While new laws or initiatives can sound good they can also distract from or even provide cover for the failure to enforce the conventions we already have.
Transparency of beneficial ownership and action on professional enablers are two good examples of this, but there are many others. Proper scrutiny of politically exposed persons at home and abroad for example. PEPs are time and again at the root of corruption at every level.
We must not lose sight of the need for countries to ensure adequate, accurate and timely beneficial ownership information is available. Incomplete, unverified, out of date information in a public register is not as useful as law enforcement agencies being able to access the right information at the point they need it.
Financial institutions, lawyers, accountants and other professions must hold themselves to the highest standards, conduct proper due diligence on their customers, including by identifying their beneficial owners. This must also be enforced, and governments must ensure their law enforcement agencies and regulators are able to do that and held to account for it.
If governments, law enforcement agencies, regulators and businesses can get this right then there is real value in initiatives like public registries and automatic exchange of information. But let's be careful not to put the cart before the horse.
As the cover of Time magazine shows, money laundering was big problem in 1989. We are now seeing money laundering convictions every day and assets seized all over the world. However money laundering remain a big problem. There is a real question about whether the current level of enforcement is merely keeping a lid on the problem rather than making real headway against it.
You can't effectively combat corruption without laws and regulations.
But you also can't combat corruption unless you enforce these laws and regulations, effectively and proportionately.
Implementation and enforcement is the challenge all countries face today; not the absence of the right tools to do the job. The G20 in every recent communiqué has committed to fully implementing the FATF recommendations. Now is the time for action.