The IMF and the Fight against Money Laundering and the Financing Of Terrorism
Money laundering is a process in which the illicit source of assets obtained or generated by criminal activity is concealed to obscure the link between the funds and the original criminal activity. Terrorist activities may also be funded with funds that represent the proceeds of illegal activities. Perpetrators of these activities constantly seek new ways to launder the funds in order to use them without drawing the attention of authorities to the source of the funds and the links with the underlying crime(s). In 2000, the Fund responded to calls from the international community to expand its work in the area of anti-money laundering (AML). After the tragic events of September 11, 2001, the Fund intensified its activities in this area and extended them to the area of combating the financing of terrorism (CFT). |
Why are money laundering and terrorist financing a concern?
The international community has made the fight against money laundering and terrorist financing a priority. Among the goals of this effort are: protecting the integrity of the international financial system, cutting off the resources available to terrorists, and thus making it more difficult for criminals to profit from their crimes and for terrorists to fund their activities. The IMF is especially concerned about the possible consequences of money laundering on its members' economies. This could include risks to the integrity and stability of financial institutions and financial systems and increased volatility of international capital flows.
The problems presented by these activities are global. Money launderers exploit differences between national anti-money laundering laws and systems, preferring jurisdictions with weak or ineffective controls where they can move their funds more easily. If countries fail to address money laundering issues adequately, crime can become more entrenched. The perception that a country's commercial and financial sectors are vulnerable to money laundering may also deter foreign direct investment.
How are money laundering and terrorist financing being addressed?
The Financial Action Task Force on Money Laundering (FATF), a 34-member inter-governmental body established by the G-7 Summit in Paris in 1989 has primary responsibility for developing a worldwide standard for AML and CFT. It works in close cooperation with other key international organizations, including the IMF, the World Bank, the United Nations, and FATF-style regional bodies (FSRBs).
In order to identify steps that national governments should take to implement effective AML programs, FATF issued a list of recommendations (40 Recommendations), which set out a basic, universally applicable framework of measures covering the criminal justice system, the financial sector and certain non-financial businesses and professions, and international cooperation. This international standard was thoroughly reviewed and updated in 2003.
In the wake of the terrorist attacks of September 11, 2001, the FATF expanded its mandate beyond money laundering to address terrorist financing. An extraordinary FATF Plenary on the Financing of Terrorism, held in Washington, D.C. in October 2001, issued Eight Special Recommendations on Terrorist Financing as a new international standard to supplement the 40 Recommendations. This standard has been subsequently expanded and now includes 9 Special Recommendations on Terrorist Financing.
What is the IMF's role in the AML/CFT efforts?
The IMF is contributing to the international efforts in several important ways, consistent with its core areas of competence. As a collaborative institution with near universal membership, the IMF is a natural forum for sharing information, developing common approaches to issues, and promoting desirable policies and standards-all of which are critical in the fight against money laundering and the financing of terrorism. In addition, the IMF's broad experience in conducting financial sector assessments, providing technical assistance in the financial sector, and exercising surveillance over members' economic systems has been particularly helpful in evaluating countries' compliance with the international AML/CFT standard and in developing programs to help them address identified shortcomings.
Following September 11, 2001, the IMF continued to deepen its engagement in the global fight against money laundering and the financing of terrorism. In 2004, the IMF Executive Board agreed to make AML/CFT assessments and technical assistance a regular part of IMF work and to cover the full scope of the FATF recommendations. The IMF has been a substantial contributor in this area by collaborating with the FATF and FATF-style regional bodies (FSRBs), conducting AML/CFT assessments, providing technical assistance and assisting in policy development and research.