Targeting terrorist financing

Targeting terrorist financing involves international cooperation and coordination. However, the primacy of domestic interests over collective good and a predisposition to unilateral action, notably on the part of the US, have completely overwhelmed the spirit of cooperation among states and have undermined the effectiveness of the regimes against terrorist financing.

Identifying and managing low money laundering risk : perspectives on FATF's risk-based guidance

Purpose – The purpose of this paper is to investigate Financial Action Task Force (FATF)'s risk-based guidance to combat money laundering and terrorist financing to determine its approach to the identification and management of low-risk providers, products and transactions.

Design/methodology/approach – The paper analyses the relevant FATF recommendations and its guidance notes and reflects on key questions for regulators and financial institutions.

Findings – FATF has not defined “risk” for purposes of the risk-based approach. The absence of a clear definition complicates the identification of low-risk products. FATF do provide an example of a risk matrix that can be used to identify low-risk banks, but the example is based on assumptions and generalisations that are not sustainable. In addition, it identifies certain low-value transactions as “low risk” transactions. The paper reflects on the role of value as an indicator of risk and concludes with a number of suggestions to clarify the conceptual framework.

Originality/value – Low-risk products and transactions are often overlooked because the risk-based approach focuses attention on high-risk matters. Low-risk products are however crucial to the efforts to increase financial inclusion. The paper identifies gaps in the current conceptual framework and indicates ways in which they can be addressed.

Financial inclusion and financial integrity : aligned incentives?

A large percentage of the population in developing countries saves, remits money or accesses credit using informal financial services. Financial inclusion initiatives aim to expand the reach and attractiveness of formal financial services. Recently, the Financial Action Task Force embraced financial inclusion as complementary to anti-money laundering and counter-terrorist financing as it enhances financial transparency. Analyzing preliminary data from FinScope surveys on eight African countries we argue that an increase in access to formal services does not automatically imply an immediate and corresponding reduction of usage of informal services, especially as many individuals use informal and formal services in parallel. We consider customer trade-offs regarding the use of formal and informal services especially considering transparency as a potential disincentive to use formal services. The alignment of financial inclusion and integrity will fail where customers are apprehensive about increased transparency.

The 2012 Revised FATF Recommendations: Assessing and Mitigating Mobile Money Integrity Risks Within the New Standards Framework

Mobile money holds great financial inclusion promise, but also poses financial integrity challenges. The Financial Action Task Force (FATF)—the intergovernmental global anti-money laundering (AML) and counter-terrorist financing (CTF) standard-setting body—expressed support for financial inclusion and mobile money as a means to decrease the use of non-transparent cash in many developing countries. In February 2012, FATF adopted a new revised set of standards. This Article considers the impact of these new standards on mobile money models in developing countries. It highlights aspects of the new standards that would facilitate innovative mobile money models, but also points to questions and challenges. The new standards are generally more facilitative of new financial services models for the unbanked and underbanked, but a number of key questions and implementation challenges remain. These include mobile money-related privacy and cyber-crime concerns.

Conservative corporate compliance: Reflections on a study of compliance responses by South African banks

While corporate non-compliance receives much attention, conservative and over-compliant responses are often ignored. These responses go beyond what is required by a particular regulatory requirement. In many cases, regulators may support such responses because they advance regulatory objectives. In the context of risk-based regulation and compliance, especially the model implemented by the Financial Action Task Force to combat money laundering and financing of terrorists, that may, however, not necessarily be the case. With this risk-based approach, regulated institutions are required to respond to higher risks by adopting enhanced risk mitigation measures and are allowed to simplify those measures where the risks are assessed as low. Failure in the latter cases to simplify risk mitigation measures where appropriate, may be inefficient and, in some instances, may even undermine regulatory objectives. This article investigates the drivers of conservative responses by South African banks to statutory anti-money laundering and counter-terrorist financing laws.

The association between the investment opportunity set and corporate financing and dividend decisions: some Australian evidence

Summarizes previous research on the investment opportunity set (IOS) using price-based and investment-based proxies and variance measures; and develops hypotheses on the relationship between IOS, debt/equity ratios and dividend policies. Tests them on 1990-1998 data from listed Australian companies and explains the methodology, which builds on Gover and Gover (1993) by including more recent proxy variables. Finds no significant results from low growth firms, although some high growth firms show lower debt/equity ratios and dividends. Questions the robustness of existing IOS proxies in the Australian context and calls for further research.

Abnormal behavior detection for early warning of terrorist attack

Many terrorist attacks are accomplished by bringing explosive devices hidden in ordinary-looking objects to public places. In such case, it is almost impossible to distinguish a terrorist from ordinary people just from the isolated appearance. However, valuable clues might be discovered through analyzing a series of actions of the same person. Abnormal behaviors of object fetching, deposit, or exchange in public places might indicate potential attacks. Based on the widely equipped CCTV surveillance systems at the entrance of many public places, this paper proposes an algorithm to detect such abnormal behaviors for early warning of terrorist attack.

Money laundering control and suppression of financing of terrorism : some thoughts on the impact of customer due diligence measures on financial exclusion

Purpose – The purpose of this paper is to explore the relationship between anti-money laundering (“AML”) and combating of financing of terrorism (“CFT”) customer due diligence (“CDD”) measures in the financial services industry, and exclusion from financial services.
Design/methodology/approach – An introduction to the concept of financial exclusion is provided as well as an overview of international AML/CFT CDD standards. The paper highlights a softening of national CDD measures in South Africa and the UK to lessen the impact on financial exclusion.
Findings – Countries should consider the impact that CDD requirements may have on financial exclusion when they design their AML/CFT systems.
Research limitations/implications – Multi-discilinary research is required to improve the understanding of the broader interaction between AML/CFT objectives, financial exclusion and economic development, especially in countries with a large informal economy.
Practical implications – CDD requirements may unnecessarily exacerbate financial exclusion if they are not formulated with care to reflect the reality of the particular country setting.
Originality/value – The paper offers insights into the international standards resulting to the identification of clients and the experiences in the UK and South Africa regarding the implementation of these standards on financial exclusion.