FINANCIAL CENTRES READY TO BAR TERRORIST FINANCING

International Money Marketing, 6 December 2001

At its meeting in Washington at the end of October, the Financial Action Task Force issued eight recommendations designed to cut off, as far as possible, terrorist financing, in a speedy response to the September 11 attacks on New York and Washington.

The 29-member organisation has stated that its ambitious aim is to "deny terrorists and their supporters access to the international financial system". But to what extent are these resolutions new? Do they merely set down in writing what is already standard practice in the majority of countries?

The special recommendations committed members to ratifying all UN instruments on terrorist financing. In addition, members should criminalise the financing of terrorism and, as a by-product, freeze and confiscate terrorist assets, report suspicious transactions and provide assistance to other countries' law enforcement or regulatory authorities.

Anti money-laundering requirements should be imposed on "alternative remittance systems" and steps taken to ensure that organisations (particularly non-profit organisations) cannot be used to finance terrorism.

The recommendations also underline the importance of "know your customer" rules and emphasise that customer identification measures should be strengthened. Many commentators have seen strict enforcement of the latter point as the key to cutting off the financial resources used by terrorists.

Says FATF executive secretary Patrick Moulette: "Up to now we had established measures only for money laundering, and it was necessary to agree on how to tackle terrorist financing. It is difficult to single out one issue as the most important, as they are all important and complementary. These measures should be taken altogether and implemented all together."

According to Moulette, the FATF does not currently hold a view on how much work countries will need to do to meet the requirements. "Our immediate priority was to agree and issue recommendations," he says. "We have also agreed to a plan of action for implementation. One aspect is to conduct an assessment, which is due to start in a couple of weeks."

Nor has the FATF singled out particular jurisdictions as targets. Moulette says there will be no attempt to draw conclusions on which might be deficient until the results of the assessment are known at the beginning of 2002, although the organisation has already identified 19 "non co-operative countries or territories" that have failed to comply adequately with 40 recommendations published in 1990 as a blueprint for the prevention of money laundering.

"This is a global problem and it will be a broad campaign to promote the recommendations," he says. "All countries will be invited to complete the questionnaire to see where they stand." However, Moulette does not believe any country will be 100 per cent compliant, and he adds that it is not the job of the FATF to decide where the boundaries of "terrorism" lie, although this may become an issue further down the analysis process.

Reaction to the FATF recommendations from the Caribbean has been generally positive. Jennifer Dilbert, a member of the Cayman Islands government, says she is happy with the way the process has been conducted, but adds: "We have to make sure that the perception that money laundering equals offshore doesn't happen with terrorism. After all, money laundering is taking dirty money and making it clean, terrorism is taking clean money and making it dirty. There is no reason to think that terrorists would use an offshore centre, when the money is needed onshore."

The perception among Caribbean offshore centres seems to be that the approach adopted by the FATF has been less confrontational than that taken initially by the OECD.

Ben Coleman, a spokesman for the International Tax and Investment Organisation, says: "The FATF is now embarking on a round of peer review, which is very, very welcome. We can give mutual evaluation. The OECD had a top-down approach. It was very slow and the problems lay less in what was demanded than the arrogant and patronising way it conducted itself. The FATF has made it clear it will conduct itself on the basis of an equal approach."

This is a view echoed by representatives of other Caribbean jurisdictions, which believe that they have been marginalised in previous global initiatives. Says Victor Banks, Anguilla's finance minister: "The FATF recommendations just reinforce the need for us to be vigilant about who we do business with."

In Europe, Luxembourg Bankers' Association general manager Lucien Thiel says the most recent FATF recommendations do not really involve significant new elements, but he notes that achieving a common definition of terrorism could be tricky. "As everyone knows, what some people call terrorists, others call freedom-fighters," he says.

However, Thiel is confident that Luxembourg, whose money-laundering measures recently received the approbation of the FATF, already has measures in place covering terrorism: "Our legislation already covers organised crime, and terrorism falls within the scope of this."

Thiel adds: "The problem is that other countries are now finding accounts that they should have uncovered years ago, long before they received a list of suspect individuals and organisations from Mr Bush."

Phil Austin, chief executive of Jersey Finance, points out that on October 10 the island implemented the Terrorist Financing Order, a measure that is virtually identical to the legislation introduced for the City of London and allows the freezing of assets belonging to individuals suspected of funding terrorist activities.

Austin adds that Jersey plans to adopt the UN convention for the Suppression of Terrorist Financing as soon as its domestic legislation, the Prevention of Terrorism (Jersey) Law 1996, has been amended. This will enable Jersey to try individuals for terrorist crimes, notably the financing of terrorism, committed outside Jersey.

Says Austin: "Regulators and law enforcement agencies have acknowledged the significant level of regulation in Jersey. However, other commentators often group all offshore centres together in some sort of 'catch all' classification that inaccurately implies we all too easily allow money laundering, and that we are cloaked in bank secrecy.

"Jersey's laws against terrorism and laundering the proceeds of crime are at the cutting edge and our 'know your customer' rules equate with the best international practice. Jersey's anti money-laundering defences were examined by an international evaluation team, which included representatives from the US, UK and France, and in 1999 concluded that the island was 'close to complete adherence' to the 40 FATF recommendations."

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