Financial Crime Insights Episode 23: FATF’s Unintended Consequences: The Past

(upbeat music) - Hi, welcome to Financial Crime Insights, a podcast brought to you by the Center for Financial Crime and Security Studies at Rusey. My name is Alana Putza and I'm the program manager. I'll be introducing the episodes which cover the breadth of our research. We'll hear from top financial crime thinkers who took part in our past events, as well as some behind-the-scenes research interviews with the team. The topics they discuss remain timely and our aim is to bring these financial crime insights from the computer screen to our listeners on the go. Today's episode is the first in our three-part series focusing on the past, present, and future of the FATF standards and their unintended consequences. Tom Keating is joined by Leah VanBerkova from the Human Security Collective, Veronica Stoetsgaard of IMTN, Victoria Ibtizem O'Herry of Spaces for Change, and Wendy Delmar from the Caribbean Association of Banks. Together, they delve into FATF's past to examine how the standard setter has impacted non-for-profit organizations, money service businesses, and correspondent banking. - Hello, everybody. My name is Tom Keating. I'm director of Rusey Center for Financial Crime and Security Studies at the Royal United Services Institute in London. Most of you will be familiar with Rusey Center for Financial Crime and Security Studies, but for those of you who are not, we are a specialist research program founded at Rusey in 2014 on the intersection of finance and security. We aim for our research to equip the international community with the knowledge, tools, and ideas to understand, identify, and disrupt the threats of illicit finance, as well importantly, as to ensure that those tools and that knowledge is applied effectively with the desired outcomes. With that, I'm delighted to welcome you to today's discussion focused on the unintended consequences of the Financial Action Task Force's standards. That's not my title. That's the title that the Financial Action Task Force has ascribed to its current project, which many of you will know began earlier this year. The FATF has taken the welcome step of setting up this project on unintended consequences and announcing that it would be launching a new research initiative to "study and mitigate the unintended consequences resulting from the incorrect implementation of FATF standards." And it's identified four main affected areas. The first is de-risking. The second is financial inclusion. The third is suppression of MPOs or the MPO sector as a whole. And fourthly, threats to fundamental human rights. So as the FATF considers ways to mitigate the unintended consequences of its financial crime standards, we thought it appropriate to organize a three-part series to exchange views on FATF's work on this issue to date, identify current challenges, and a look ahead to future ways in which its standards might be manipulated. With the hope, of course, that these misapplications and abuses can be anticipated and preempted using lessons from the past. And so this first in our series will consider FATF's past efforts related to not-for-profit organizations, money service businesses, and correspondent banking. The thinking applied to the challenge of unintended consequences by the FATF is certainly welcome. But thoughts do not equate to actions. And so today, I hope we can explore what actions have been taken to date and the way in which, in the wide experience of our panelists, these actions have gone some way to addressing the unintended consequences that the sectors represented today have all experienced. Or maybe they have not. We shall see as we get into the discussion. To share their views and experiences on the unintended consequences of the FATF's financial crime standards and to provide some insight into the experiences of a series of different sectors, I'm delighted to be joined by four expert panelists. Joining us from the Netherlands, we welcome Lea Van Brookhofer, Executive Director of the Human Security Collective and Long Time and somewhat successful campaigner for the FATF to recognize and respond to the impact its standards have on the MPO sector. Veronica Sturtzgaard joins us from Denmark. She has been working on this issue since 2005 when she founded IMTN, the leading non-profit membership organization representing money transfer operations worldwide and has, say, a similar level of experience with the FATF and campaigning. From Lagos in Nigeria, we welcome Victoria Ibitsim Oheri, Executive Director of Spaces for Change, a non-profit human rights organization working to infuse human rights into social and economic decision-making processes in Nigeria. And last but not least, from, I hope, Sunny St. Lucia, we are joined by Wendy Delma, CEO of the Caribbean Association of Banks, a sector that has experienced the considerable impact of correspondent banking be risking. So I'm going to turn to Lea first. And just as a nice opener, can you give us a sense of how your sector has been impacted by FATF standards over the years and how that impact has changed the way your sector has had to operate? Lea. - Good question, John. I think our sector, now I'm sure, I know our sector has been affected tremendously by the FATF/AMLC standards over the years. And we became very much aware of that in '28, '29 already when I was at a time working for an international NGO in the Netherlands and where we received from partners that we financed across the world, all types of NPO partners in the sector, ranging from humanitarian to development, to human rights, to peace-building organizations. They had difficulty with accessing the bank accounts, for example. They had difficulty receiving money from donors. They had difficulty registering in that country as an NPO that started already in '20 or '8, '20 or '9. That was the time I became aware of it. And then one of my partners said, "You have to look into this quite a pure organization called FATF, because that name pops up every time we are doing some inquiries into why are we having trouble with our banks? Why are we having trouble with registering our NPO's?" And so on. So in 2011, I commissioned a study on FATF. What is this task force? What are the AMLC of these standards? How is it impacting our NPO sector? And this report was done by a UK consultant and it was called policy laundering through the FATF, how AMAL and CFP standards impact the NPO sector. And the report was actually well researched. It researched the mutual evaluation reports up till the third round at the time, because the fourth round of evaluations where the evaluators were looking at the effectiveness of the standards was not happening in 2013. And the report included all the evaluations of the third round until 2012. And from that evaluation, we could conclude that a lot of NPO's across the world, whether in countries governed by authoritarian governments or by democratic governments or some of the format in between, were affected by these standards. And as I said again, I think in two major ways, access to financial service became very difficult and there were very onerous registration requirements coming from government, which were not there before. So two things were happening as a consequence of the AMAL CFP standards of the FATF. And this was also clear from the report again, which we commissioned and the consultant analyzed the evaluations of the FATF done until 2012. So we had a set of evidence that the FATF standard did not let's say achieve what they set out to achieve. And that was to protect the NPO sector from terrorism financing abuse. On the contrary, the NPO sector was actually pushed back. There was a chilling effect on the NPO sector. And for some of the governments, it was not an unintended but an intended consequence because there was this, I think, corresponding developments to push back on civil societies going on since 9/11. And the standards of the FATF became another tool in the toolbox of these type of governments. However, I must also say that the majority of the governments unwittingly misinterpreted, wrongly interpreted the FATF standards because they honestly didn't know what NPO's are, what the NPO sector is, that NPO's have a right to freedom of association, assembly, peaceful assembly, access to resources and so on. They had no clue. So they were actually interpreting the standards unwittingly in the wrong way. So for us as an NPO sector, and if I say sector, it's a bit of a wrong rubric to define NPO's because there's so many types of NPO's, right? From small, voluntary groups comprising of citizens who do good voluntary work at community level to highly professional groups that work across the globe on humanitarian aid, they all fall within the rubric NPO's for the FATF. But all of them were affected each in their own way. So we, if I say we, I mean a group of NPO's that established the Global NPO Coalition in 2013 to address this issue with the FATF, we were a big tent. And from the onset, we invited in the big tent to engage with the FATF, smaller voluntary organizations up to the bigger, let's say, I would say almost operating as a multinational professional NPO's. But we all shared one common, I would say common concern that is that the FATF standards and particularly recommendation aid at that time that singled us out as particularly vulnerable for terrorism financing had done a lot of damage to our sector. And so we needed to engage and we needed to come up with alternatives to that recommendation. It's a bit of a background on how we were affected as NPO's. - Great, thanks for that because there's obviously more than 10 years of history and hard work. But Veronica, so you've been at this as it were since 2005, you were saying before. So what's been your experience? How did you come to this? And what have been the impacts on the sector that you represent? - Yes, as you mentioned, IMTM started in 2005 and it was in October 2005, we had our first meeting. And I remember there was one of the participants that raised the hand and wanted to speak and we had an agenda which it was not including Ban Ki-Riskin. And he raised the hand and so of course we allowed him to speak and he mentioned Ban Ki-Riskin and he was explaining how his business had been affected by Ban Ki-Riskin. And I was like, coming from the hedge fund industry before, you know, so I was like, oh, but Ban Ki-Riskin has been there all the time. So it probably is, you know, one sector, one specific corridor. So I thought I should check a bit more about that. So I started checking and I found out that, yes, effectively, as Leah mentioned before in 2001, after 9/11, of course, the whole regulation of AML and CFT changed. So I found out that between 2004, 2005, major US banks stopped banking, MTO, remittance service providers. Not all of them, but some of them. But we could see that it was a beginning there. It was more than what it was normal, what would happen before. So we kept an eye on that, and we were static collecting information just to make sure that it was not just one corridor, specifically, but we noticed that at that time, the alternative that remittance services provider had was to work with other banks, to work with state banks, smaller banks. It created a problem because, of course, sometimes they were not able to offer all the services the remittance services provider needed, but there was an alternative. But then it came 2008, and we had a financial crisis, and that was when more banks decided to terminate the relationship with the remittance services provider, not just the major banks in the US, but around the world, especially in Europe, was where it started. And in that case, there was no relation with corridors. So we could see that there was not a relation. And what we noticed is that in some cases, it was also with non-banking financial institutions. So the alternative that sometimes the remittance services provider could use was getting smaller. They were also unbanking this sector. So with IMTM, we engage with members all around the world. And it was in a meeting we had in the Middle East in 2011 that the members from the Middle East came with this new thing for me, that it was Operation Chop Pony. And I had no idea what that was, what that means by that time. So I started asking around, asking different governments, what is this about, does it exist, or not if there are any evidence. I couldn't find any documentation on it by the time. Everyone immediately jumped at saying, I have no idea what you're talking about, darling. No, never heard of it. And that was how it stayed. But from the Middle East, they told me there is something there about this. And check this Operation Chop Pony, check FATF. So those were the two main things I had to check. And that's why I went straight to US Treasury, when I could, and FATF. I raised awareness, you know, about the situation that this bank risk was affecting the industry, and that the main concern was that it could turn into a snowball effect. Of course, everyone listened to me and told me, let's see, we're not sure that it is up to that extent. But then it came 2012, and 2012 was when HSBC in the UK decided to exit the industry as well. It was followed by May 2013, when Barclays Bank, who was banking by that time over 350 meat and services providers, started sending letters to them, saying that they had 60 days to change bank, because it was a termination letter. And only 60 days, which was very short time. Of course, that changed everything. That was when basically everyone started looking at that, because it was many, many meat and services providers in the UK when, by that time, most of the meat and services providers were registered in the UK and working from everywhere from the UK. UK had the majority of meat and services providers in whole Europe. So it was important. That was when, even though I was reaching out to everyone, I went to the UK government. The UK Treasury decided to come with the idea of the action group, of course, for the remittances. So we started having meetings there. But you know, most of these meetings is sometimes full of people with good intention, but they arrive too much, to be honest. I mean, one of the good things we had was that we could discuss with different stakeholders. But it still needed to have more. And by that time, you know, bank risk can continue increasing. I mean, the industry was not being banked, and the alternatives were less. And what we were seeing by that time was that the risk, instead of actually helping all these AML standards, actually, you know, looking after AML, as it should be, what it was doing, was basically moving the risk and pushing the clients to either smaller financial institutions that didn't have the adequate standard AML controls, or in most cases, to the informal market. And we saw a very important shift on that. Yeah, we can talk about what you did to try and address that in a second. But before we turn to Wendy to hear about the correspondent banking side, or certainly the view from the Caribbean, Victoria, I'll come to you, because obviously, you work for an MPO, which, well, you tell us. Have you experienced this kind of problem in the way you operate in Nigeria? Thank you, Tom. I think the way FATF standards or overall CFT initiatives, the kind of consequences they produce at the international level, I think it's very significantly with the kind of shocks or consequences that are experienced at the national levels, the kind of evidence that we're seeing, they tend to align with clause 3 and 4 of the unintended consequences workroom, which has to deal with the suppression of MPOs, or MPO sector as a whole, and a threat to fundamental human rights. So in terms of the kinds of suppression, what does suppression of MPOs mean? And sometimes, I think the first time I had a conversation, I use the word misapplication, may not necessarily be incorrect, because these consequences have been seen them for a while, and it took from 2016 for MPO sectors being to understand the FATF link to these consequences. So there are about three major types of scenarios playing out at the national level. The first is what we call the contested designation. And that contested designation has to do with the way MPOs are classified and the regulated entity that shares uniform characteristics with businesses, especially the businesses FATF classified as designated non-financial businesses and professionals. The second consequence we're seeing is what I would call regulatory duplicity and overlap. I'll come back to this, and the third is blanket restrictions, which now take to us over regulation. Going back to contested designation, what does it do? Contest designation now means that MPOs are now subjected to the same stringent reporting requirements respected from businesses. That designation is not consistent with FATF best practices. It is already codified in a number of national laws. By that codification, it means that it is a statutory requirement for MPOs to comply. Those requirements are onerous, they are time-consuming, and of course, they are costs for compliance, which may have a choking effect for smaller organizations. The biggest problem is the second one, which is the regulatory duplicity and overlap. What that means is that CFT enforcement is fragmented across different agencies, quite the multitude of agencies. With all of them rolling out their own compliance initiative, it means that MPOs have multiple compliance obligations with multiple institutions, and most of those obligations are either uniform or overlapping. So if you need to file a non-return here, if you file a non-return here, you file it there, you file it there, you file it there, you file it there. Some of them are easy, some of them are a bit burdensome, and some of them are imposed by the banking sector. The banking sector has too many banking regulations dictated by the country's CFT sector. Some of them include transaction limits, and those transaction means for MPOs it requires bank charges. Let's say you want to transfer $5,000, and the limit is $1,000, so you have to split it five times. So five times you have to pay charges five times on all of those transactions, and the charges are charged to the receiver, not to the donor. So that is a reduction of the actual branch that is received. Then there is also what we call the multiple registration controls, which is MPOs are required to register with different entities to require legal status. That multiple registration also has its own implication for the operational efficiency of a lot of MPO. Then there's opening up bank account difficulties. It's now much more difficult for an MPO to open a bank account. Most of these experiences we are having, it means that the time for MPOs who have used for humanitarian action, they are not devoting it to compliance and pay power. Again, it's also resulting to a lot of project delays, help not reaching those in greatest need in real time. The last part, which is something that I hear a lot of other stakeholders from other countries say that there's experience, which is the blanket restrictions that are tilt towards regulation. National governments have not undertaken any risk assessment of the MPO sector and have, we've been without doing that if crafted legislation, blanket legislation that is aimed at the entire sector, and this is not in line with recommendation eight or the FATF recommendations. So what the blankets generalization application of the MLCF three regions, what it does is that it applies to different subsets of MPOs whether at risk or not at risk. And in the country, I think Leah did mention that MPOs are very diverse both in structure and objectives. And you are such a very big country with different MPOs working some in safe locations, some in conflict settings, and all of them facing unique spectrum. But the laws are applied to them uniformly, irrespective of their location or the sense of funding or the kind of operations that are taking part in. We think these regulations are to be scoped in a way that responds to the kind of risk that different MPOs face. When we started having all of these experiences, this was until 2016 that Spaces for Change, we launched a research to look at what is really driving all of this shock. And that was the first ever time that we had about FATF and we tried to establish a link between FATF standards. And this, and we saw what we had started back at the beginning called wrong application or misapplication of the standards. Sometimes an example why I use the word misapplication is that when Nigeria conducted a risk assessment in 2016, the MPO sector was not assessed. It was assessed together with other designated non-financial businesses and professionals. And that created a problem because they were businesses and this is a non-profit space. And this created a problem. They could, even the scoring had some difficulties. And during the point of engagement, another thing I think I should mention, MPOs were not also involved during that assessment. Of course, it reflected in the results. But during the post-risk assessment engagement, we found that it wasn't intentional. It wasn't intended to produce a kind of consequences that we're seeing. But the good news is that we have certain officials or technocrats in place at the moment that now see the need for a demonstration political will to reverse some of these trends that we're seeing. A national, an MPO risk assessment has been scheduled for the second quarter of the year. So we're hoping that with that exercise, we're going to start seeing some changes. We're going to start seeing coherence in how MSFT regimes apply to MPOs. We're going to start seeing better coordination of how MPO resources are raised, channeled, spined or imported. And most importantly, greater respect for the right to freedom of association and assembly in Nigeria. Excellent. Thank you, Victoria. So you started to be a little bit positive towards the end. We'll come to positive things in a moment. But Wendy, your perspective then as CEO of the Caribbean Banking Association has relates to how your members have fared. Honestly, please allow me to thank you, Tom and your team at FUSI for recognizing the significant impact of de-risking on small and dependent economies such as ours in the Caribbean. Let me start off by saying that the sector that I represent is located within the Caribbean region. It is most people's dream to vacation, to visit and to own second homes in the Caribbean. However, this geographic location by virtue of our placement between North and South America, while many may see it as paradise, this has long been plagued by the unfavorable perception of being high risk in the world of finance and compliance. And having said that, my sector specifically has been significantly and adversely impacted by FATF standards and has had to endure a truly brutal wave of de-risking activity. The peak of this activity occurred throughout 2015 to 2018, during which time one of our territories believes lost all of their correspondent banking relationships with the exception of their central bank. Economies such as ours are truly based on our ability to trade within countries and within jurisdictions outside of our own. And so when you undertake that level of de-risking, essentially what we saw was an entire country being de-risked and not individual banks based on their, you know, your customer procedures, et cetera. But we saw the entire de-risking of a country, which meant that this country then basically could not trade outside of their borders. In more instances than not, we are heavily dependent on the outside world for our basic survival. So when we speak of financial inclusion, we often wonder where does that leave us when these sorts of decisions are taken and such blanket decisions are made and left impacting entire peoples in specific countries. In addition to that, the standards imposed by the FATF have resulted in tremendous amounts of energy, effort and resources expended within banks and other financial institutions to implement the necessary requirements and continuously adhere to regulation. This has, of course, led to the establishment of entire compliance departments in some instances and the investment of sometimes burdensome amounts of money into the purchasing of compliance-related technology and software. In addition, the processing time of standard business activities such as the opening of a new account has greatly increased and the demands placed on the customer related to the customer due diligence checks have become increasingly onerous, which places the banks at a very unfortunate position where we are constantly having to defend the need to ask for additional documentation. And really, on islands such as ours, for example, Saint Lucia is a mere 238 square miles, we grew up with these people, we know these people, we went to school with their children, we, you know, and so it places tremendous challenges on what the entire banking sector is based on, which is to service and relationship. So in as much as we are asked to know our customers, we know them intimately. Yes, there may be opportunities to dig in a little deeper, to really understand the business models that they operate. But essentially, when you ask for the sort of information that we are forced to ask for and to document, it becomes really challenging. And of course, the integrity of the banking system becomes questioned by the very people that we are here to sue. When we look also at the rising costs of compliance from a technology investment perspective and the scale, the size of our institutions, you recognize as well, that this becomes a less profitable venture for a lot of banks. And of course, for those of you who are aware, we have seen the exit of all of the international banks within our markets, with the exception of very few. So for example, we've seen the Exit of Social Bank, we have recently seen the buyout of RBC, and there have been a number of attempts with FCIB as well to exit the local markets. So this has as well changed the landscape of the financial services sector within the Caribbean basin. Of course, it has provided opportunity for our indigenous banks to really step up and to expand their operating models as well as increase their presence within the jurisdictions, but it does not significantly address the issues that we continue to face from a de-risking perspective. I think one of my esteemed panelists as well spoke extensively to the impact of remittances. In a lot of our islands, if not all of our islands, the majority of our populations exist. They survive by remittances coming back into country from family members who have traveled and lived overseas for many years. And with the impact of de-risking, you would see that there again, are tremendous lags and associated costs being borne by the recipients of those funds, which means that the ability to survive or to continue to thrive in any meaningful way is tremendously reduced. - All right, thank you. So we've sort of painted a picture around the room. So now we're gonna get into what people's experience has been with kind of communicating and engaging on these issues with the FATF, but also with national authorities. So yeah, maybe you could just kind of shortly give us a sense of how you found engaging with the FATF on this issue. Were they surprised when you came to them the first time and said, "Hey, we've got a problem. "Surely FATF should be doing some sort of impact assessment "when it introduces these recommendations." So give us a sense of how you found the engagement process with the FATF over the last 10 years. - Okay, well, to answer the last question, is it due to an impact assessment of FATF processes and the framework standards? Like, yeah, for environmental impact assessment or social impact assessments, right? Which the World Bank does, for example, or the owners do when they do social projects or environmental projects. I think it's a great idea, you know, which we should look into. But going back on the question, how was it to engage with the FATF? Well, I talked about the report we did, right? The commissions, where we looked into the evaluations and how the FATF, let's say standards, impacted negatively on NPOs, which we got from the evaluation reports up till 2012. With this report, we went to the FATF, but they also went in parallel to the UN Counterterrorism Executive Directorate, the FATF observer, and to the World Bank, the Financial Integrity Department at the time, also a financial FATF observer. So we shared the report with the UN, Counterterrorism Executive Directorate, with the World Bank, and they very much liked the report. They said the negative impact of the FATF standards and NPOs, that is an issue that is so important. And it's good that you're flagging that, but it's very hard for you to get that message across FATF. And I'm talking now about 2012. So what we did actually was to, first, before we talked to the FATF, we went to the Dutch Ministry of Finance, because of course we found out that the FATF is a membership organization of ministries of finance, amongst others, but they make up the core, let's say, membership. So we went to our Ministry of Finance and we said, "Look, we have commissioned this report. "These are the results. "The FATF standards have a negative impact on NPOs. "Civil Society organizations are pushed back by the standards, "whether through de-risking "or whether through onerous over-regulation." So what is your answer to that Ministry of Finance of the Netherlands? And they were actually taken aback by that, and they said, "My goodness, you know, "I'm also representing the NPO sector at the FATF plenaries. "I was not aware, as a FATF delegate, "that you're so negatively affected." So, you know, I think it's a great idea that you reach out to the FATF and I'll help you with that. So it is actually our Ministry of Finance and the FATF delegation that introduced us to the then president of the FATF in 2012, who was from Norway. It was Björn Amal, and I think that was lucky for us, for two reasons. Björn Amal was from Norway, a country which, of course, is a country which is very, very good on civil society space, right? It's Freedom of Assembly, Association, Access to Resources, and so on. So that was the first, the second reason, and that's a more tragic reason. There was, of course, the attack of André's Bryffig in 2011 on the island, Utoya. There were a lot of young victims there, members of the Social Democratic Party that were gathering there for their yearly camping out. So he was very sensitive on this issue of terrorism financing and also, at the same time, coming from a country which was very supportive of civil society space. So from the latter point of view, he was welcoming us with our report. From the point of view that Norway was the victim of a terrorist attack, he was actually critical and he asked me when I met him for the first time, presenting the report, are you not in favor? Are you against terrorism? Are you against terrorism financing? These are heinous crimes, and we need to really address them. So the FATF is very much needed. So, you know, to cut the long story short, we had a very interesting conversation with Björn, the then FATF president in Oslo, where he invited us to speak with him, but also to show us around to the Ministry of Finance that was bombed during the attack of André's Bryffig. So I think it sounds a bit like a personal story, but this really helped to start the engagement with the FATF. So it was easy and not easy, but Björn opened up for us the conversation. And I must say he was also the one who organized the effort first meeting between the FATF membership, the secretariat, and the group of NPOs, which we gathered to engage with the FATF. And that is where I met Tom for the very first time, Cannery Walk 2013, where we had the first conversation with them. And from then on, the conversations were not easy, I must say. We didn't know each other. We had to get to know each other. We as NPOs needed to understand the FATF framework, the thinking behind it, the language they spoke. Most of the NPOs never had to engage with Ministry of Finance or central banks before, because normally we would engage with Ministry of Development Corporation, Ministry of Foreign Affairs, but not with the membership of FATF. So that was all new to us. And on the other end of the table for the secretariat and the FATF membership, they also had not dealt with NPOs before. So it was really a process of seeking to engage how we could best do that. Again, to cut another story short, since 2013, I would say that that engagement has incrementally increased into a constructive relationship with hiccups. But I think in 2021, so almost 10 years after the first metafatter, I can say that, yeah, it's constructive, it's open and it's based on mutual trust. That is with the FATF secretariat in Paris. I know and Victoria can testify to that and other members of our MPO coalition. There is quite a lot of effort that still needs to be done to engage. In the same manner we engage with the FATF secretariat in Paris, with the FSRBs. So there is a lot of challenges there, but with some of the FSRBs we've also started on, I think, quite a good footing with the MPOs and our constituents. - Thank you. Yeah, so I was gonna come exactly to that, the FSRBs next, 'cause I think actually the journey the MPOs have been on is really quite impressive, yes, with some hiccups, but generally it's been a positive direction of travel to the extent now that there's a special webpage for the FATF website for MPOs and all of that. But the FATF are a community of generally the wealthier nations and perhaps not the ones that are beneficiaries of humanitarian aid or beneficiaries of correspondent banking or what have you. So Wendy, I want us to come back to you if I may, and then I'll come Victoria to you because I'd like to understand what the perspective is in your dealings with the regional FATF bodies. So in the case of the Caribbean, the Caribbean FATF, the Sea FATF, how do you feel? You must feel a long way away from the center of power in Paris. Absolutely, I mean, we have spent countless hours trying to have these engagements with FATF Directly. And for the most part, the national authorities are encouraged by the recognition that it's now been given to the fact that they have been indeed unintended consequences and some would say arguably unintended consequences and that the Caribbean region, of course, is significantly impacted from an economic standpoint. However, interestingly enough, CAB hosted its fifth annual CEO and director's forum two weeks ago. And there we had representation as a panelist from the Sea FATF. So the discussions between us as agencies have been significant and they are improving. But of course, you would understand, of course, that when the banking sector comes under this sort of attack, it is certainly something that needs to be addressed in a very efficient and expedient manner because it has a crippling effect on the, like I said, the public as well as the economies that we saw. In large measure, the response from Sea FATF has been very encouraging in terms of what they have been doing. From our discussions, it is clear that recognition of the consequences of FATF standards is receiving increased attention. The unfortunate thing, like I said before, is the integrity of the sector is being questioned with many people thinking that banks have used this as a strategy to increase costs and to request additional information, which simply is not the case. Banks are businesses and they operate as such. But of course, it has to be understood by Joe Public that the banks are regulated and quite heavily so. And so adjustments must be made to the various operating models to ensure that we are not penalized and heavily financially penalized for not falling short of the required standards imposed by FATF and Sea FATF by extension. Yes, I'm going to come to Veronica in a second to ask a question on the kind of economic side. But before we do that, Victoria, what's your experience of dealing with Java? You're in Nigeria, so Nigeria is a member of Java. But also dealing with the national regulator, because of course, ultimately the national supervisor is the body that you have to deal with most intimately. Yeah, I think our relationship with Java, I would use the word also constructive, very open, they are very willing and supportive. But in terms of the kind of strategic revisions we're seeing at the international level, we also would anticipate that Java would ensure that those revisions trickle down to the countries that fall under their jurisdiction. And that needs to really start happening. In one of our interactions with Java, I kept on asking what is feeding these the persistent restrictions and consequences that are targeted at the NPO sector. I make one observation that we have documented is that Nigeria has not received a lot of positive rating from Java. And as a result, Nigeria has been under pressure to conform to international financial regulations. And the result is that state actors often go overboard to demonstrate their seriousness to fight corruption, to combat money laundering and tourism financing. I will give specific examples. In 2008, Java published the mutual evaluation report on anti-money laundering and combatting the financing of terrorism for Nigeria. And followed up with the 2008 report with seven follow up reports for each year from 2009 to 2015. Each reassessing Nigeria's AML safety compliance based on improvements that have been made since the last assessment. The rating of the NPO sector from 2008 to 2015 remained non-compliant all through the period. And Nigeria went through the second mutual evaluation that was in 2019. And the report is not officially out, but from the last we are getting from within the civil society suggests that the ratings again may not be positive. So what governments, African governments, including Nigeria, what they're doing, they're responding to the low ratings with tighter legislative measures in the name of countering financing of terrorism, which of course have wider implication on the wider economy and specifically in space for legitimate NPO positions. So that is why I think that the revisions happening with the FAT of unintended work screen is beautiful. It's good that they are gathering the evidence. And it's good that the evidence is going to inform the strategic review. But those revisions do not mean much to some of us in the national context. If we do not see those revisions inform amendments, legislative amendments, inform changes or amendment of even national safety responses. So as long as that is happening, we're still going to keep knocking on Jiaba's doors to do what it has to do to make this initiative more meaningful for the region. There's an opportunity at the moment. We're now the eighth of July. So there is an opportunity before the end of this month to feed in examples to the FATF of where this kind of over-compliance, let's call it that, is taking place. Of course, we need to provide examples to FATF, but it is clear that there is no downside to over-compliance from a FATAF evaluation perspective. Now, Veronica, we've been talking about the FATAF regional bodies, about the FATAF, the way that engagement has worked. Obviously, the money service business community, their first line of contact in all of this is the banks. So where are we now in terms of how banks are engaging with money service businesses? And there's a question which says, is it really FATAF standards or is this actually banks blaming FATF and AML standards in order to get rid of less profitable customers? And I'll let Wendy come back in on this in a second because she'll have a view from her perspective. But Veronica, in your money service business experience, how do you see that situation? - Yes, that is correct. I think that question is very interesting. And it's very important to clarify that because one of the things when we started talking to the banks, we had these meetings, you know, where we tried to talk to all the stakeholders and we went to the process of pointing each other, is everybody blaming. But when we started talking to the banks, the main thing was to understand why they were doing that. And in some cases, we noticed, and in some cases, it was not always the AML standard. In some cases, and still now we saw it with what happened last year, 2020 with the lockdowns. In some cases, it was a commercial decision. So we have to not to blame all the time to FATF, I would say, you know, I think they deserve to have certain doubt, but yes, the standard did the damage of putting the industry sometimes in the perception of high risk, because that's one of the things, the industry has been at least ever meeting services provided, have been seen always as a high risk. But in some countries, we have to say that not always is misinterpretation, but in some cases, misuse of the standards. Just to give you an idea before I saw Leah, she was talking about the relation with FATF. We had a relation with them for longer. I started attending some of the meetings in 2008, but before they were not even talking about the meetings, it was all about banking. So we were not in the agenda. And it was when the actual secretary came to Paris, that was when we started engaging more. I mean, in 2014, I think it was, I took a report to them, explaining what we could see. It was a report that we did with a few regional associations around the world to gather information. But it was then when we took it to FATF, and there it was clear. In some cases, yes, it was the AML standard, but in some others, it was the misuse of the AML standard that some stakeholders were doing. And at the moment, how is the situation? The situation is in some countries, some regions, we know some jurisdiction. We are very much aware that it's almost impossible to get a bank account as a remittance service providers. And in some others, you can work with alternative. Obviously, the pandemic made it even more difficult because even the alternatives were not there anymore, or they were having challenges. And one of the things we notice now is that it's not just the remittance services providers, who are being affected by this banking risk, it's also the providers. Like, for example, in some cases, the alternatives that they have, or in some other cases, it could be not only the agents, partners. In some cases, it's customers. We found out in some countries that the banks have been calling the customers when they notice that they are doing transactions with remittance services providers to discourage them. Or in some cases, to tell them we will close your bank account if you keep on using. And then, you know, we have to think about, when we talk about this topic, it's not just one driver that is moving this. There are many drivers. It's the perception of the industry, is corresponding bank the risk. And we have to keep that in mind because some of the banks said to us, we would like to bank the industry. But by doing that, we are risking to lose our corresponding bank account in New York. So that was another thing that we did. We went to the Financial Stability Board and we had for two years, you know, these meetings around Europe, talking to all the banks, the bulk group, and to try to understand how was corresponding banking working? What were the standards that we're using? Could we take something from them if we work together? So the situation is that we keep on having meetings and people keep on doing reports, but we don't see any progress. - Okay, that's a bit of a bleak picture. Leah, I wanted to ask you a quick question actually, which responds to something that's been asked in the Q&A. You obviously benefited from having a supportive home government in the Netherlands, supportive view of the Fatah President at that time, Norway. How would you approach this if you were from a country that didn't have a supportive government, that wasn't going to speak for you, either at the Java, C Fatah, SM lag, whatever, regional penalty, or at Head FATF? - This is not only a hypothetical question. We have been dealing with non-responsive governments, right? Or governments that are not so keen on non-profit organizations, particularly critical civil society organizations. What does help there, I think, and that's again, you know, I think the Global NPO Coalition has a certain reputation and members of the FATF know that, that we have been engaging with the secretariat, that we have been pivotal. I'm saying this in all modesty, but it's not only me, it's of course the entire coalition helping to revise recommendation aids. And we use that, let's say, that reputation that cover to help with engagement between civil society organization and POs, non-profit organizations, and some of the more unwilling governments. We have done that in countries in South Asia, we have done that in countries in the Middle East, we have done that in countries in certain parts of Sub-Saharan Africa. And what happens then is that members of the Global NPO Coalition itself, for example, are being invited more as an outside expert by the NPO. And often the NPO within country is also an NPO that still has the ear of the Ministry of Finance, for example. Might not have the ear of a Ministry of Foreign Affairs or Ministry of Justice. So governments too, as we know, are not once, don't speak or don't look with one ear or one eye, right? So you have to also fight away within the government apparatus. It's not impossible, it's very hard process. Often I also have experienced in a country in South Asia that our partner there, who has a very good reputation, what they did was also invite in these first dialogues between the NPO sector and the Ministry of Finance, and the Central Bank and Security and Exchange Commission. They invited them all to a meeting about the FATF standard and how they were misplied in that country, but also helped us to invite parliamentarians, particularly from progressive parties. So, you know, there's not one recipe how to go about that. But what you do rely on is that you need to have a good local partner that still has credibility with government entities in the countries. And in most of the countries with governments that are not so keen on civil society as possible, in some countries, it's nearly impossible. Though I must say, with regard to de-risking, we have had a very good engagement with a partner from a country in one of the Arab states, which is almost completely closed to civil society, but they do suffer from de-risking decisions by their own central bank and the government. And with them, we have engaged on the G20, also together with the FATF. David Lewis, the current Secretary General of the ATF, had a presentation at a meeting we had with this partner at the G20 last year. And when I say G20, it's the parallel, let's say, event organized by the civil society 20, but that civil society from that specific Arab country was the host, and it tremendously helped them. Within the country to push for their own agenda against de-risking them. - That's a very interesting tactic, isn't it? To basically say, oh, by the way, you're suffering from sort of correspondence de-risking, your economy is suffering. Well, guess what? This is just another part of that same challenge. Wendy, if I could come to you just to maybe put your banker's hat on in response to what Veronica was saying. Yes, obviously the banks in the Caribbean have faced tremendous challenges maintaining correspondent relationships. But when they then turn around and they look at some of providing services to money service businesses or whatever it might be, how do they judge the risk that the money service businesses present? Is that a function of profit? Is it a function of pressure from their respondent banks? How do they think about those sectors that we've also talked about today? - So the first thing I think that we need to bear in mind is that the banking sector is a heavily regulated sector. So first and foremost, we do have our central banks that we are responsible to and they will provide their own guidelines within which we must operate. And then also there's no your customers. So while we, like Veronica quite rightly said and I heard and felt her frustration and remember my own days in core banking, but we would hear these same pleas. You know, we also have to ensure as a banking sector that we are answering to the many gods, so to speak that we are responsible too. De-risking really has been one of those things where we have not been told by any one correspondent bank that this is the reason why we are choosing to off-board you or to de-risk you. And so what the banks would then be left to do and you would appreciate that the Caribbean is an archipelago and every single island has its own unique legislative nuances is that we then have to determine from a trending perspective what are some of the things that we would provide information on that would then turn around a response to say, you know, well, you know, we're no longer able to do favorable business with you. We begin to analyze that information and then of course the banks would have to take decisions around what sort of customer profile, what segment of customer have we been representing that have turned that around? You know, how many transactions, does the transaction fit the profile of the customer? And so a lot of times when it comes down to relationship, have we dug enough into the customer to understand the business? Does it fit the risk profile of the institution? And then decisions have to be taken. So for example, having traveled throughout the region and working in most, if not all of the islands, what you would see is the banks will also, in addition to the set standards within which we operate, have special process procedure written which will guide the additional business to ensure one that we have a clearly documented process. Because again, the added layer that banks face is the mutual evaluation process, right? And that is yet another layer of regulation that the bank has to go through. In a lot of instances, you will see the countries suffering as a result of those mutual evaluation reports which speaks to the banks or the financial services sector not meeting the basic requirements. However, we have non banking institutions who are also being assessed, but we have absolutely no jurisdiction over. And so it becomes unfortunate that the banks have to find themselves in a position where we are constantly defending the actions that the banking sector takes. When, as I would have said in my very first response, the entire de-risking initiative has been one based and predicated pretty much on the perception of being high risk. But we cannot say categorically that these are the actions, these are the transactions, these are the customer profiles that have led to us losing the very relationships that we need for basic survival. - Very good, thank you. So we're gonna have to start the wrap up. I'm gonna finish with one question to everybody, the same question. So if you could just give me a short response to this and Leah, I will start with you. So what output or outcome would you like to see from this FATAF unintended consequences project? - One answer, right? Well, buying this guy answers great recommendation. For example, but that's not going to happen. But I think more realistically, two things. I think the human rights, let's say, principles that the FATAF is now taking up, it should also be featured in the entire package. The standards and methodology, the process and procedures. I think that's an important thing. And particularly in the risk analysis in recommendation one, that when countries do a risk analysis, they also adhere to international human rights standards and international humanitarian law as well. So it's more than one thing, but I think that is extremely important. - Great, thank you very much. And Veronica, I'll come to you next. What would be on your one wish list? - I think, you know, it takes a lot of courage what FATAF is doing on analyzing, doing these unintended consequences. So I think we need strong support from all stakeholders. So I wish that FATAF, all these exercises that they are doing will also encourage, because it's not just one body that will solve this issue, that will just encourage others to commit to this, to find a solution to this, or to try at least to find a solution. Because many times we were in these meetings all with different agenda. So I would like that we can have all the same agenda. - Very good, thank you. Victoria, what would you like to see? What's your one wish? - I have two wishes that are linked to one. The review is happening upstream. It's trickle down downstream. I hear FATAF when they say that they are trying their best to make sure it's closed down through mutual evaluations, assessments, and capacity building. The second wish is related to that, where there is evidence that after your evaluation and after your assessments and after your capacity building, and there are still consequences on the ground. It means that there needs to be consequences on the perpetrator. So in a situation where states are able to do this without also consequences, then it means that we're going to continue having these conversations, writing reports, and nothing really changing. - Yeah, I think that's a very important point. We should be using the consequences word in other ways, as well as unintended consequences. - And an interesting point you make there, as well, Victoria. I think reforms defy gravity. They don't trickle down. They have to be actively pushed down. And I think if we just think that trickle down will happen, we'll be waiting for ever. And finally, Wendy, what would you wish to see from the FATAF project? - You know, in my poor banking days, I always spoke to my team by starting by saying, if you had a magic wand, then you could wave it and change it overnight. What would your wish be? And my wish simply would be that we would see increased tailoring or modification of the FATAF's monitoring and evaluation approach or method based on the incorporation of the unique challenges within the regions. Understanding that every jurisdiction is different. In the Caribbean, yes, we are only a stone throw away, more often than not 15 minutes between each island, but really and truly the legislative requirements and changes cannot keep pace with the required changes based on the standards that are being implemented and constantly adjusted. So we are always, always on the back foot trying to catch up. - I think that plays to this important point that others have made, which is that of course, the FATAF standards, however inclusive FATAF tries to be inevitably, it is whatever it is now, 37 countries and two regions and many countries around the world don't have a voice at that table when decisions are made, which are then forced down on them. So we're going to have to come to an end, sadly at that point, but I think I've taken away some useful points from this. We kind of talked about displacement that can happen when you can pressure NPOs or money service businesses in the way that they've been pressured and displacement equals heightened risk rather than reduced risk. The blanket application point that Victoria made, I think very important kind of nuance in the application of regulations and guidelines is critical and the most famous blanket application is that all MPOs are particularly vulnerable, which of course Leah spent and colleagues spend a long time trying to clarify. Engagement is obviously also important on all of this. And I think Leah, your MPO coalition is a great example of what you can achieve with engagement and those that are interested in that should definitely take a look at the website. This is hard work, this is hard work. Again, Victoria, to a point you made, reforms don't trickle down, countries need to understand that they need to implement them and they of course need to be consequences if that doesn't happen. To hear about the details of our other events and if you would like to know more about our work at the Center for Financial Crime and Security Studies and stay in touch, then do please follow us on Twitter @cfcs_rusi, sign up to the CFCS mailing list that you can find via our section of the Russi website. And if you are a devoted follower of LinkedIn, you can find us there too. So with that, thank you to you all as panellists very much for joining us. I'm Tom Keating and until the next time, you all stay well and have a good day. Bye for now all. - Thanks for listening to this episode of Financial Crime and Sites from Russi's Center for Financial Crime and Security Studies. To find out more about our work, please visit rusi.org/cfcs where you can sign up to our newsletter. You can also find us on Twitter by following @cfcs_rusi and we're also on LinkedIn. And don't miss our other podcast, The Suspicious Transaction Report to get more behind-the-scenes insights. This episode is produced by Jonathan Wenderbach and edited by Karen Yates at Two Drugs Communications. Thanks for listening and bye for now. you