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Anti-Money Laundering Regulations: Can Somalia survive without remittances?

Sonia Plaza's picture

Remittances have been the main source of foreign exchange supporting Somalia during the conflict for the last twenty years. A recent IMF fact-finding mission to Somalia found that about $2 billion in remittances are handled by money transfer companies. These companies are located throughout the country and they are providing shadow banking services since there are no licensed commercial banks. Somalis called this system “xawilaad” which is the Somali rendering of the Arabic word “hawala”.

Since the events of September 11, 2001, many countries have adopted stringent Anti-Money Laundering and Combatting the Financing of Terror (AML-CFT) regulations for funds transfers. Several banks in the US (Wells Fargo, US Bank, the TCF bank, and Sunrise Community Bank) and in the UK closed the accounts of money services business to avoid incurring in penalties for not complying with the new regulations. (Note: HSBC was fined $1.9 billion for not complying with money laundering controls in 2012.)

Weekly Wire: the Global Forum

Kalliope Kokolis's picture

These are some of the views and reports relevant to our readers that caught our attention this week.

'Many vested interests benefit from a lack of open government'
Public Leaders Network 

“In the first of a series of interviews with speakers and attendees at the Open Government Partnership (OGP) summit 2013, we talk to Professor Jonathan Fox, of the school of international service, American University, Washington.

He will moderate a session in which the founding eight OGP countries will present their two-year national action plans as well as reflect on their first progress report from the OGP's independent reporting mechanism. The OGP was launched in 2011, and is aimed at making governments more transparent and accountable.”  READ MORE
 

The Royal stamp of Inclusion

Andre Corterier's picture


Financial Inclusion advocate Queen Maxima pushed the FATF to consider financial inclusion (Credit: Haags Uitburo)

Monarchs seem mostly untroubled by financial concerns, but Queen Maxima of the Netherlands has made the workings and regulations of those excluded from the formal banking sector a personal issue. Queen Maxima recently attended a plenary meeting of the Financial Action Task Force (FATF) - the first reigning Queen to be present at such a gathering, in order to raise concerns and bring change on a subject that has become a passion for her – and the World Bank Group: financial inclusion. Queen Maxima is the UN Secretary-General’s Special Advocate for Inclusive Finance for Development. In this role, she had already called on the FATF to pay more attention to financial inclusion, and how it relates to financial integrity. In June 2010, at the initiative of the then Dutch Presidency of the FATF, the then Princess Maxima pressed a reluctant FATF plenary in Amsterdam to recognize how ill-designed financial integrity requirements affect financial inclusion by keeping people outside the formal banking sector, and how this can raise the risk of  money laundering and terrorist financing.

Tearing down the walls of corporate secrecy – the G8 leads but will it follow up?

Emile van der Does de Willebois's picture


The G8's actions on 'beneficial ownership' are a breakthrough in the fight against financial crimes (Credit: James Lauritiz,Digital Vision Collection, Getty Images)

The move was momentous and, until a few weeks ago, quite unexpected. In a push to tear down the walls of corporate secrecy, the G8 has just committed to ensuring that each of its members will have immediate access to the identity of the so-called “beneficial owner” - the individual who ultimately pulls the strings behind companies- in their jurisdiction. Not very long ago talk of “beneficial ownership” was the domain of a handful of policy wonks and the odd NGO; now it’s taken center stage.

The G8’s statement represents a major breakthrough in fighting financial crime, corruption and tax evasion. Law enforcement and regulatory action have been hampered for far too long by the lack of access to information on the individuals who, ultimately, benefit from the ill-gotten gains stashed away in a variety of exotic sounding entities around the world. The seemingly impenetrable barriers of corporate secrecy have been lifted and the walls are coming down.

Walk the talk and fight illicit flows

Jean Pesme's picture

Credit: Images_of_Money, Flickr Creative Commons

A hornet’s nest has been stirred up by the leak of millions of financial files by the International Consortium of Investigative Journalists (ICIJ) in collaboration with journalists around the world. The ICIJ says that its work reveals more than 120,000 offshore companies and trusts, exposing the hidden dealings involving politicians, businessmen and others. While authorities around the world are assessing the validity of these documents, the extent of the information emanating from the British Virgin Islands, the Cook Islands and elsewhere is revealing in many ways. Importantly it is a rebuff to those who claim that there is no problem with the workings and transparency of the international financial system. Whatever the veracity of the allegations contained in the ICIJ report, they reveal the extent of highly complex and secret financial and corporate structures, and their cross-border nature.  These revelations have already spurred some to call for more regulation by governments.

Bringing the banks to account

It began as a trickle but has turned into a flood. HSBC, Barclays, Wachovia, JP Morgan, and UBS have all been engulfed by waves of scandal involving, money laundering, fixing interest rates, risky trades, and rigging the money markets. The question now is – have the banks gone bad? The claim by senior bank executives they ‘we did not know’ rings hollow, and must not be allowed to stand if they are to regain their integrity. 

The banks have long resisted greater hands-on supervision of their activities, but the recent rash of publicity surrounding their bad conduct proves that left to their own devices market discipline is not enough. Their involvement in dubious transactions, including in greasing the wheels of corruption through money laundering requires the full implementation of existing rules and regulation, and empowered supervision. The World Bank’s Stolen Asset Recovery Initiative (StAR) along with Financial Market Integrity (FMI) have long pressed for the banks to do more to prevent money laundering and to fight corruption.  As a rough estimate, it is believed that $20 – $40 billion is stolen from the coffers of developing countries every year. Much of it ends up being laundered through the banks, passing through financial capitals around the world en route to the beneficiaries. Mechanisms to detect illicit cash flows have long been in place, but the existing system is not working, and corruption is eating away at the foundations of the banking system.

No Willful Blindness to Corruption

Emile van der Does de Willebois's picture

Last week, British NGO Global Witness published Grave Secrecy, a report on how U.K. registered companies were allegedly used to launder the profits of corruption. Hundreds of millions of dollars passed through the corporate accounts of dozens of shell companies that held bank accounts at Asia Universal Bank (AUB), the largest bank in Kyrgyzstan. Although the report is based on one concrete case of alleged corruption and money laundering in that country, its relevance goes beyond that single example.There is no excuse for being willfully blind to corruption Photo Credit: joannelummey, Flickr Creative Commons

It is just one illustration of how money launderers and those involved in large-scale corruption use companies to hold criminal assets whilst ensuring that information on the control of those companies is virtually inaccessible. The essence of those schemes is to parcel out different bits of information on the company to different jurisdictions from which such information can only be obtained with difficulty (so-called secrecy jurisdictions). Indeed, how does one find relevant information on a U.K. company owned by a company registered in the British Virgin Islands with a company secretary in the Marshall Islands and a director in Panama? Criminal creativity knows no bounds.