The continued focus on the struggle against money laundering (ML) and the financing of terrorism (FT), both locally and internationally, as part of the wider financial crime risk management agenda, is on the increase.
A recent webinar organised by the MFSA on the theme ‘Striking a Balance between De-Risking and Managing Risk in the Financial Services Industry’ featured among others, a panel discussion entitled ‘Funding of Terrorism Risk Inherent to International Financial Centres’. The speakers on this panel discussion, which I moderated, consisted of two representatives from the Malta Bankers’ Association (MBA), namely Simon Vaughan Johnson, CEO of HSBC Bank Malta plc, and Cynthia Borg, head of Financial Crime Compliance at APS Bank plc.
The discussion focused on aspects of funding of terrorism risk inherent to international financial centres (IFCs) within the context of the concerns expressed in respect of the local jurisdiction in the 2019 Moneyval report.
The panellists delivered a number of key takeaways which served to place the subject of FT within the proper context locally and which are indicative of the constantly evolving nature of the fight against terrorism and its funding.
In this respect the MBA’s representatives referred to the excellent FIAU ‘Guidance Note on the Funding of Terrorism’, which combines insights and select findings from the 2019 FT Risk Assessment. It builds on the FIAU’s 2018 Guidance Note by providing more substantive information on emerging trends and typology specific case studies and red flags.
In fact, the note provides 14 case studies, three of which were local. It is evident that terrorist organisations demonstrate remarkable diversity and creativity in the development of methods which they adopt to route funds through banks and other payment channels and institutions.
Thus there is no doubt that FT is an inherently complex subject, making it hard to spot and trace. As a result, it is an arduous and very challenging process for Subject Persons (SPs) like banks to effectively counter FT. Moreover, it would appear that since in Malta we have so far been spared any major terrorism attack – implying that terrorism is perceived to happen beyond our shores – this has led to a situation where SPs may not be as familiar with the nuances that arise from the FT as they are with the somewhat more ‘plain vanilla’ cases and examples of ML, especially when one considers that banks were among the first SPs to which legislation dealing with the Prevention of ML (PML) was applicable way back in 1994.
There is no doubt that the financing of terrorism is an inherently complex subject making it hard to spot and trace
There is, however, another element that impacts significantly in this respect and which makes countering FT (CFT) very demanding. While the ‘culture’ of PML has by now permeated most SPs, this may not necessarily be the same for CFT. Consequently, this implies that systems and procedures implementing financial crime compliance have to be augmented by specialised training on recognising and mitigating FT, delivered internally and externally, such as sharing experiences between the MBA’s members and by the relevant competent authorities to the industry.
Moreover, in order to enhance the understanding of FT risks inherent to Malta as an IFC, it is imperative that, going forward, the governance frameworks of institutions should include comprehensive information flows on ongoing efforts to CFT. In this way one would bridge the challenges of driving transformation in compliance cultures to ensure that these are being undertaken to the same extent as that undertaken for PML.
Other key points resulting from the panel discussion dealt with ways on how to increase co-operation between stakeholders, through the setting up of both Private Public Partnerships (PPP) and Private to Private (P to P) structures. An excellent example of the former, which is considered internationally to be an example of best practice, is the Joint Money Laundering Intelligence Task Force (JMLIT) in the UK. The JMLIT is a partnership between law enforcement and the financial services sector to exchange and analyse information relating to money laundering and wider economic threats.
On the other hand the Dutch cutting-edge initiative known as Transaction Monitoring Netherlands (TMNL) is considered by bank leaders as “significantly enhancing effectiveness and quality of transaction monitoring”.
Five major Dutch banks (ABN AMRO Bank NV, ING, Rabobank, Triodos Bank and de Volksbank) in July 2020 pledged to establish TMNL to fight against dirty money. The new initiative focuses on identifying unusual patterns in payments traffic that individual banks may not always be in a position to identify. I believe the TMNL is set to revolutionise how information is shared between these participating banks.
While it is true to say that these initiatives are addressed primarily for PML purposes, I believe that the improved exchange of relevant information will result in much better intelligence and knowledge flows which lend themselves to augmenting the fight also against FT.
I augur that through the support of the local authorities, a dialogue will be initiated at the earliest to explore the potential implementation of similar initiatives, ideally through both PPP and P to P structures. It is feasible that tangible action in this area will send the right messages to the numerous stakeholders, both local and foreign.
Equally importantly, cooperation among institutions and the competent authorities should result in an enhanced cost effectiveness and net gains in a more robust fight against ML/FT.
At the end of the day, in our joint efforts in PML/CFT there is no ‘us or them’ in terms of institutions versus competent authorities and vice-versa.
Likewise it should become very clear to all and sundry that efforts in this respect would not just be aimed at addressing shortcomings in the short-term, but demonstrate a long-term robust commitment by the jurisdiction to up the ante in our efforts in the fight against ML and FT.
Karol Gabarretta, Secretary General, Malta Bankers’ Association