AML/CFT Regulation in Light of Global Financial Crisis Presented by Muhammad Baasiri SIC Secretary US-MENA PSD Chairman MENAFATF 1 st Year President 1 st Annual Compliance & AML Seminar Riyadh, Kingdom of Saudi Arabia 24 th, 25 th March 2009

 Reasons behind Global financial Crisis  Impact on AML in light of Global financial Crisis  Challenges facing AML in Light of Global Financial Crisis Accountability for the Global Financial Crime, Rethinking/redefining of AML Optimal Allocation of Human & Monetary Resources Cooperation between Developed & Developing countries Adequate priority to AML Program Regulatory framework to prevent future financial crisis  Conclusion 2 OutlineOutline

1)Collapse of US-sub-prime mortgage market 2) Poor judgment by borrowers and/or lenders, 3)Speculation & overbuilding during the boom period, 4)Complex financial products & Risky mortgage products, 5)Inaccurate Credit Rating 6)High personal and corporate debt levels, 7)Central Banks’ restrictive monetary policies in a number of countries, 8)Governments regulation or the lack of 9)Stock market volatility, downward currency values 10)Moral Hazard, abundance of greed, & corruption Reasons behind Global financial Crisis 3

1) Significant investment in AML systems and controls due to increase in transaction monitoring and staffing 2) High Demand for forensic services, fields of fraud & litigation 3) More risk-based AML programs, 4) Restructuring AML regime by centralization or outsourcing functions 5) Advanced AML software systems 4 Impact on AML/CFT in light of Current Financial Crisis Impact on AML/CFT in light of Current Financial Crisis

I.Accountability for the Global Financial Crime, Rethinking/redefining of AML II.Optimal Allocation of Human & Monetary Resources III.Maintaining International Cooperation IV.Adequate priority to AML Program V.Regulatory framework to prevent future financial crisis 5 Challenges facing AML in Light of Global Financial Crisis Challenges facing AML in Light of Global Financial Crisis

 Banking Regulators; who are guilty of systematic failure to spot the early signs of dangerous dependence on inter-bank funding, heavy exposure to mortgage debt, soaring house price inflation, & complex financial products  Hence The Role of banking Regulators; To be prudent by protecting depositors, To monitor systemic risk reduction of disruption from adverse trading conditions for banks To Avoid misuse of banks for criminal purposes (securities fraud, stock manipulation schemes, embezzlement by stockbrokers, corruption, misuse of power & laundering the proceeds of crime) To Protect banking confidentiality (even from Insider trading) Credit allocation - to direct credit to favored sectors 6 I. Accountability for Global Financial Crisis

 Corporate CEO’s; guilty of Greed that clouds judgment (excessive pay, bonuses, & preferred shares)  Credit Rating agencies; who faced inherent conflict of interest with many of their clients issuing securities rated by their analysts,  Investors; guilty of wanting all with no leverage to back up their debts  Lenders: failed to make sure borrowers had a job or income to cover for their loans 7 I.Accountability for Global Financial Crisis (continued)

 In light of financial Crisis, comes the need to have a broader understanding of money laundering, what constitutes illicit money, how they are concealed, & introduced into the financial system, which channels are currently used, how they are invested  To expand AML predicate offenses to include all the designated categories of offences such as Insider trading, market manipulation, corruption & bribery 8 Need to Redefine AML

consequently  Global Economies are in recession, consequently hence  Limited, Depleted & Expensive financial & human resources available for AML, hence through  Need to intelligently allocate resources in AML regime, through or through  Outsourcing or centralization of AML functions or through and  Training, Raising Awareness as criminals are constantly evolving and  Increasing sophistication of law enforcement professionals such as AML experts, fraud examiners, compliance officers, forensic accountants, experienced professionals in money laundering investigations 9 Optimal Allocation of Human & Monetary Resources II. Optimal Allocation of Human & Monetary Resources

 Despite the lack of enough trust between countries and regulators, they should be looking at: Exchanging intelligence, expertise & lessons learned, Stepping up assistance to jurisdictions that are struggling to establish their regimes, Implementing streamlined procedures in freezing, confiscating, & returning the ML assets Helping develop technical assistance programs Forge consensus on global strategies that can adequately serve the different needs of the global market? 10 III. Maintaining International Cooperation

Banks and other financial institutions have to take a more holistic approach to AML, Improved controls – Existing and expected evolving regulatory requirements demand better financial controls Need to be more proactive to identify and catch illicit funds High Fraud level in economic crisis, places additional pressure on banks & financial institutions to have transparent governance, adequate screening of clients, proper KYC forms, and AML regime in place 11 IV. Awarding adequate priority to AML Regime

 Implement New regulatory framework to prevent future similar financial crisis Establish appropriate preventive measures to mitigate against such huge losses, reform-measures Effective and comprehensive reform of the international monetary & financial systems Enhanced regulation through adequate standards, transparency, accountability & oversight Improving risk management practices Improving valuation standards of complex financial instruments 12 V. Preventive Regulatory Framework

During economic downturn, adequate screening systems become more important. Fraud tends to gather pace in a credit crunch & has much greater impact during crisis. With white collar crime increasing and regulators handing down penalties against both companies and individuals for anti-money laundering lapses, the need for systematic, rigorous screening of customer databases has never been more important.” Conclusion 13

Thank You 14