Abstract
This article analyzes the monetary consequences of the banking and financial regulatory restrictions imposed in February 2000 by the Financial Action Task Force on money laundering (FATF) on 23 nations placed on the list of Non-Cooperative Countries and Territories (NCCTs) for not meeting many of the 25 criteria established to combat money laundering and the financing of terrorism. Countries introducing new measures to meet several of the criteria related to banking regulation and additional tightening of financial secrecy were de-listed from the list of NCCTs in as early as 2001 with the last country being de-listed in October 2006. The regulatory measures may have had money, banking and other economic implications motivating an empirical investigation of the issue. Evaluating the experience of the NCCTs with the international regulation of banking and financial sectors aims at determining the monetary impact of the measures. The impact, if any, could possibly require a change in current and future monetary policy conduct in each of these countries. Additionally, the process of identifying what is now known as countries with AML/CFT (anti-money laundering/ counter financing of terrorism) deficiencies is an ongoing declared strategy requiring deriving policy lessons for future regulation. The results reached show that unlike some results in the literature, the measures did not seem to have significantly impacted the monetary variables in the NCCTs. This serves to shed additional light on the monetary policy conduct after introducing these measures and allows further regulation by FATF of banking and financial sectors in countries with AML/CFT deficiencies without concerns about necessarily impacting monetary variables.
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References and Notes
Background and institutional information concerning FATF and its relating issues is available at the FATF website: www.fatf-gafi.org.
A full listing and discussion of the 40 recommendations is available on the FATF website: www.fatf-gafi.org/40recs-en.htm.
The eight additional recommendations that deal with terrorist financing are also available at the FATF website: www.fatf-gafi.org/TerFinance-en.htm.
In addition to the initial report outlining the 25 criteria ‘Report on Non-Cooperative Countries and Territories’, 14 February 2000: www.fatf-gafi.org/pdf/NCCT-en.pdfthese criteria are found at the end of the five ‘Annual Reviews of Non-Cooperative Countries and Territories’ (2000-2004): www.fatf-gafi.org.
The timeline of decisions found in Table 1 that highlights the 23 countries listed as NCCTs, with the date of listing, date of de-listing and the status of countries remaining or removed from the monitoring list, is taken from the annual review of non-cooperative countries and territories 2007 at the following site: www.fatf-gafi.org/dataoecd/14/11/39552632.pdf. Additionally, refer to Shahin, W. (2005) De-listing from NCCTs and money laundering control measures: A banking regulation perspective. Journal of Money Laundering Control 8 (4): 320–327.
This information is available in various FATF statements on high-risk and non-cooperative jurisdictions available on the www.faft-gafi.org.
The jurisdictions that are believed to have strategic AML/CFT deficiencies for which they have developed an action plan with FATF are according to ‘Improving Global AMA/CFT Compliance: update on-going process’ in ‘FATF Identifies Jurisdictions with Specific Deficiencies’, 22 October 2010, www.fatf-gafi.org as follows: Angola, Antigua and Barbuda, Bangladesh, Bolivia, Ecuador, Ethiopia, Ghana, Greece, Honduras, Indonesia, Kenya, Morocco, Myanmar, Nepal, Nigeria, Pakistan, Paraguay, Philippines, Sao Tome and Principe, Sri Lanka, Sudan, Syria, Tanzania, Thailand, Trinidad and Tobago, Turkey, Turkmenistan, Ukraine, Venezuela, Vietnam, Yemen. The two countries removed from the monitoring list after being placed on it in 2010 are Azerbaijan and Qatar.
This information is available in various FATF statements on high-risk and non-cooperative jurisdictions available on the www.faft-gafi.org It appears in the statement on ‘Improving Global AML/CFT Compliance: update on-going process’, in ‘FATF identifies Jurisdictions with Specific Deficiencies’, 22 October 2010.
See FATF Consultation Paper ‘The Review of the Standards-Preparation for the 4th Round of Mutual Evaluations’, October 2010, on www.fatf-gafi.org.
Shahin, W. (2006) Monetary implications of FATF regulation of secret bank accounts to combat money laundering. Journal of Money Laundering Control 9 (2): 214–230.
English, M. and Shahin, W. (1994) Investigating the interest rate impact of changing secret bank deposit laws: Switzerland. Journal of Banking and Finance 18 (2): 461–475.
Walter (p. 206 and pp. 289-290) provides a discussion of the insider trading law and the debate that followed passing the law in I, Walter (1990) The Secret Money Market. New York: Harper and Row.
Switzerland was the first country to pass bank secrecy laws. In 1934, the Swiss National Council in article 47 of the Swiss banking law placed the concept of banking secrecy under the official protection of penal law. Divulging information on secret deposits became punishable by a prison term or by a fine even if the act has been committed by negligence or even after termination of the official or the employment relationship or the exercise of the profession (Credit Suisse, 1972, The Truth about Swiss Banking).
The benefits of financial secrecy have legal and illegal components. Legal ones take the form of personal confidentiality, legal tax avoidance, and the protection of the value of assets or the safety of asset holders that may be affected by changes in the political or economic environment of some countries. Illegal motives are reflected in hiding funds obtained through bribery and corruption, smuggling, money laundering, tax evasion, insider trading, fraud and the financing of terrorist activities. A discussion of all of these motives is found in I, Walter (1990) The Secret Money Market. New York, USA: Harper and Row, pp. 50–181.
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3earned her BS degree in Banking and Finance and her Master's degree in Business Administration from the Lebanese American University (LAU). She worked as a research assistant at the School of Business at LAU, a graduate assistant to the Dean of Business School and an ‘Econometrics-Lab’ teacher. She was awarded an ITU fellowship in Hong Kong in 2006 and was selected by the ITU Telecom World Advisory Committee for publication of her Essay on ‘What's your digital Vision?’
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Shahin, W., El-Achkar, E. & Shehab, R. The monetary impact of regulating banking and financial sectors by FATF on non-cooperative countries and territories. J Bank Regul 13, 63–72 (2012). https://doi.org/10.1057/jbr.2011.17
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DOI: https://doi.org/10.1057/jbr.2011.17