P R E S E N T A T I O N A T A C G C C R O U N D T A B L E O N I M P R O V I N G T H E R E G U L A T I O N O F S O M A L I R E M I T T A N C E S

H I L T O N N A I R O B I2 9 - 3 0 M A Y 2 0 1 3

B Y D R E L I A W O N Y J K I S A N G AE X E C U T I V E S E C R E T A R Y

E S A A M L G

AML/CFT IMPLEMENTATION IN THE

ESAAMLG REGION

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1. Overview of Status of ESAAMLG Member Countries

2. Key Challenges facing Financial Institutions

3. Benefits for Implementing AML/CFT Requirements

4. Conclusion

Outline of the Presentation

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First round of evaluations completed in 2011 registered alow level of compliance with FATF Recommendations.

As per Chart 1 below, the Region’s performance asmeasured against the FATF 40 Recommendations and 9Special Recommendations was as follows:

fully compliant with only 5% of the Recommendations;

Largely compliant with 10% of the Recommendations;

Partially compliant with 35% of the Recommendations;

Non-compliant with 49% of the Recommendations.

Status of ESAAMLG Performance

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C5%

LC10%

PC35%

NC49%

N/A1%

Chart 1: Global Performance

Status of ESAAMLG Performance (cont..)

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Except for one, all the countries have anti-money

laundering legislation.

5 countries are under the ICRG process of the

FATF. However, all countries are making efforts to

address AML/CFT deficiencies.

The private sector has an important role in

assisting respective countries’ compliance with

AML/CFT international standards.

Status of ESAAMLG Performance (cont..)

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Performance in Recommendations relevant to the

Financial Sector contributed to the overall decimal

performance.

None of the countries secured a rating of C or LC in Rec.

5. 10 countries (out of 16) registered an NC in each of the

4 Recommendations.

Rating Rec. 5 CDD

Rec. 6 PEP

Rec. 7CorrespondentBanking

Rec. 8 NewTechnologies

C 0 1 1 0

LC 0 0 2 2

PC 6 5 3 4

NC 10 10 10 10

Status of ESAAMLG Performance (cont..)

Challenges Faced by Financial Institutions

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Lack of or unclear legal and regulatory frameworks

Financial institutions are operating in an environment

where there is no AML/CFT law or the laws are not clear

enough to facilitate effective compliance.

Absence of risk-based approach to AML/CFT

Most countries have not yet conducted risk assessments

As such, the laws are applied equally to all reporting

institutions without taking into account risk.

Most financial sector supervisory authorities have not

adopted risk-based approach in AML supervision.

Challenges Faced by Financial Institutions (cont.)

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Financial institutions face challenges in conducting risk

assessments and adopting risk-based policies and

procedures.

Lack of engagement by Directors and Senior

Management

A right tone has not been set at the highest level of

financial institutions on the importance of recognising AML

as an integral part of business management.

As a result, AML issues do not have adequate budgetary

support- training and IT investment.

Challenges Faced by Financial Institutions (cont.)

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Inadequate Know Your Customer Procedures

Lack of national ID in some jurisdictions or central

database to authenticate IDs.

Inability to establish identity of beneficial owners.

Lack of transaction monitoring systems

Most financial institutions don’t have transactions

monitoring systems and therefore not able to detect

unusual or suspicious activities.

Weak internal control frameworks

Lack of appropriately qualified personnel to carry out

independent testing of the AML systems and controls.

Challenges Faced by Financial Institutions (cont.)

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Business versus compliance?

Some institutions relax KYC requirements because they

want to attract customers to boost revenue streams.

Reluctance of financial institutions to share information

about customers.

Ineffective AML regulation/ supervision

Most jurisdictions have not developed capacity to

undertake effective AML supervision and apply sanctions

against non-compliance.

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Failure to comply with the AML laws and regulations has adverse consequences on the board and the bank such as:

In respect of the board:•Imposition of monetary penalties against directors;•imprisonment of directors,

In respect of the bank:Monetary penalties,Reputational damage- loss of public confidence,withdrawal of a licence (or bank failure).Counter-measures from counterparties in the global financial market which increase costs of doing business.

Why should Directors be concerned?

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ML threatens safety and soundness of financial

institutions.

A number of factors led to the global financial

crisis, but laxity in adhering to risk management

practices features a lot in a spate of literature.

Financial institutions are therefore called upon to

embrace the new religion of enterprise wide risk

management which recognises financial & non-

financial risks- which includes ML and TF risks.

Why should Directors be concerned? (cont..)

Board of Directors must:

ensure that the institution conducts ML & TF risk

assessment in compliance with International

AML/CFT standards (FATF Rec. 1).

ensure that the institution has an AML Compliance

Program commensurate with its risk profile (to be

discussed in detail in subsequent slides).

Receive and consider reports from an AML

Compliance Officer (through an appropriate Board

Committee).

The Role and Obligations of Directors

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Board of Directors must:

Require external auditors to assess the entity’s

compliance with the ML laws and regulations and

report accordingly.

The Role and Obligations of Directors (cont..)

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The AML Compliance Program must provide for the following

minimum requirements:

Board approved AML policies and procedures which must

be informed out of the risk assessment (FATF Rec.1).

Must provide for a Board oversight arrangements through

an appropriate Committee of the Board.

Must provide for record keeping for at least a period of five

years (FATF Rec. 11)

An effective internal control system that includes suspicious

transaction monitoring system and reporting (Rec. 18 & 20).

Components of an AML Program

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Components of an AML Program (cont..)

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An independent audit function to test its AML

systems and procedures.

Must have an on-going AML training program. The

training should cover regulatory requirements and

the bank’s internal requirements.

Must provide for disciplinary procedures against

members of staff who don’t comply with the internal

AML requirements. This must be contained in the

terms and conditions of employment.

Internal anti-

money laundering

procedures

KYC

KYB

Transaction

monitoring

Exceptions

reporting

Communicate

policy to staff

Training

Job

description

Disciplinary

procedures

Record keeping

Independent

audit and

reports

Appointment

of an MLRO

Central point of

contact

Accessing KYB

details

National &

international

findings

Internal

reporting

External

reporting

Assessment of

AML/CFT &

Report to Board

Polic

ies a

nd p

rocedu

res

Internal Audit / Compliance reviews

Summary of the AML Program

Conclusion

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Status of compliance with international AML/CFT standards

varies from country to country. However, there is a general

low level of compliance in the region.

Financial institutions face some challenges that affect their

compliance with AML/CFT requirements.

Compliance with AML/CFT requirements is beneficial to the

financial institutions and the countries in which they operate.

Implementation of a robust AML/CFT regime requires

concerted and collaborative effort. Hence, the support of

financial institutions is important.

THANK YOU

Eliawony J Kisanga

ekisanga@esaamlg.or.tz

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