Speech at the Chatham House Illicit Financial Flows Conference, 1-2 March 2021

Speech by FATF Executive Secretary, David Lewis

As delivered

Hello everyone,

It’s great to at least pretend I am back at Chatham House. I look forward to being back in London, in this great institution and to seeing you all in person before too long. I’d also like to thank colleagues at Chatham House and RUSI, for keeping us all focussed on financial crime, what works and more often, what isn’t working. 

So, I know we are here today to talk about illicit financial flows. And I know the UN has recently issued a paper to define this term. But for me it remains unhelpful to talk about everything from tax avoidance to organised crime and terrorism as a single problem. So today I am going to focus mainly on money laundering.

I don’t know about you but I’m fed up with protecting the integrity of the financial system. The truth is I don’t care about the financial system, so why should I care about the integrity of it. At this point, I should point out that saying this publicly is a little risky for me – and I note that sadly, thanks to the pandemic, today I am not protected by the Chatham House Rule. This may be a little detrimental to my job, as according to its Mandate, protecting the integrity of the financial system is the point of the FATF. However in a sense that’s my point and I’m leading by example. As AML professionals we all need to take more risks and stop just ticking the boxes.

I don’t know about you, but I don’t go to work every day - or at least these days to the kitchen table, - in order to protect the integrity of the financial system. I go to work to help follow the money that fuels crime and terrorism, and to reduce the harm that causes to people and our planet.

For me, one of the reasons it is so important that we work on ‘predicate offences’ is to make AML real for people. The methods of money laundering may not differ much between many of these crimes, and the measures to stop them may be largely the same. However if it isn’t real for people then why should they care. And if they don’t care then how can we expect them to do anything more than tick the boxes. We are all human and we need to care about what we do, in order to do it well. If the FATF, as the global body responsible for AML, does not make clear the link between preventive measures like customer due diligence, and the crimes those measures are intended to prevent and detect, like people trafficking and the wildlife trade, then we can’t expect success. 

For me, this is part of the reason we are here today. We wouldn’t be here if we were entirely successful. We’d all be happy and have nothing to moan about. Indeed there would be no crime, because while there is crime there will be money laundering. But, while there is a measure of success, we are not seeing the results we are working so hard to achieve. 

For me, part of the reason for this is cultural and our fault. We need a more values based approach. The global standards are not bad, in fact I’d say they are good enough and this isn’t where we should be focussing most of our attention. If everyone implemented the standards we already have then we’d all be doing much better. There are successful investigations and prosecutions for money laundering every day. Only last week the FATF global network discussed the mutual evaluation report of New Zealand. Members agreed with the assessment team that New Zealand is nailing asset recovery. This is of course only part of what we need to do, but it’s an important part, some would say the most important, and here we have an example of a country doing it really well.  So while I talk about not doing well enough, let’s be careful not to throw the proverbial baby out with the bath water. What the New Zealand report shows is that when countries implement the global standards well, they work well. The report itself will be published in 6 weeks after technical experts from all governments in the world have had one more chance to review and challenge it.

Yet, there is always room for improvement, and the global standards are in effect minimum standards. They need to be agreed by the plethora of technical experts and officials from 39 member governments and reflect the views of 205 governments and 20 international organisations – all of which face very different risks and challenges, and consequently have different priorities. However, as the FATF President told a UN meeting last week, the challenge today is not the absence of globally agreed standards or international organisations. The challenge today is effective implementation. That’s about helping people do a better job.

This isn’t only a cultural challenge. It’s a practical one. The FATF, for its part, has now established not only a physical training centre for government officials, but also an eLearning platform. And there have never been so many realistic and achievable ways in which we can collectively do better, from the use of technology to public private partnerships. This goes back to risk, and taking more risks. The crazy thing is that the financial system has been built on managing risk. Banks are experts at it. It’s how they make their money. But all too often they are prevented from doing so by supervisory authorities who don’t know how to do it, or at least how to take a risk-based approach to supervision. 

That’s why last week, members agreed on guidance for risk-based supervision. Supervisors need to have an in-depth understanding of the risks that their regulated businesses face. They need to have appropriate powers, capacity and resources, as well as political and organisational support. The guidance addresses common challenges. It provides case studies and examples of strategies for supervising financial and non-financial businesses and professions. It will be published later this week.

However we not only need a risk-based approach, we need an intelligence-led approach. And this is why public private partnerships have such great potential. I say potential, because even good examples such as the Joint Money Laundering Intelligence Task Force in the UK, have great scope for growth and improvement. The authorities need to give banks more specific information and the intelligence required to find real suspicious activity and to focus their huge investment and resources on activity that makes a difference. We need to break down the barriers to more effective information sharing, including the myths and realities that remain around tipping off and data protection. None of this is new, but I’ve never seen such a strong appetite and consensus to get it done combined with the ready availability of the tools and technology to do it.

So what else is the FATF doing to help?

Well our work today still revolves around the three pillars of:

1. drawing from the operational agencies of governments around the world to understand how money is being laundered and how terrorism is funded;
2. setting global standards and providing best practice and guidance to help implement them; and
3. assessing the effectiveness of action taken.

However the breadth and depth of work is unprecedented and is more practically focussed and more inclusive than ever before. 

Last week members agreed to public consultations on further guidance for Virtual Asset Service Providers and for proliferation financing risk assessment and mitigation. It also completed guidance for the investigation and prosecution of terrorist financing.

Ongoing work includes looking at the challenges and opportunities of digital transformation, and the potential for data pooling by financial institutions, data analytics and data protection.

Today the FATF is working on everything from climate crime, Covid crime and migrant smuggling to the links between arms trafficking and terrorist financing. 

We also recognise the important part AML plays in the financial system and our responsibility to work with others, such as the G20 and Financial Stability Board, for example to improve the system for cross border payments and for remittances. So we are part of work with other standard setting bodies in these areas. I am happy that members have now also agreed to a new work stream on the unintended consequences of poorly implemented AML/CFT measures – from financial exclusion to the abuse of counter terrorism measures to suppress civil society - and this work will consider on an ongoing basis how these risks can be better identified and mitigated.

And our work today includes tackling the financing of far right terrorism - the fastest growing terrorist threat. Many countries are no longer just facing the threat of hundreds of radicalised recruits for ISIL and AQ. They are potentially facing thousands of armed white supremacists that, like ISIL, have been led to believe in an alternative reality. We’ve seen this and the consequences of it before in Europe and we know the terrible costs of it. The funding for it is not rocket science, everything from mixed martial arts, to music festivals and crowd funding. But we need to focus on it and do so now. So under its German presidency, the FATF is bringing together experts from around the world to do that.

And while we are very much a technical body, our voice is now much stronger at a political level. Since 2017 the FATF President has had a seat at the table for meetings of G20 Finance Ministers and Central Bank Governors. On Friday the President addressed the first such meeting this year. We are using this platform, as good civil servants, to speak truth to power and to point out where governments must do more, such as beneficial ownership that remains so illusive. And this is where I can return to illicit financial flows. The President told Ministers and Governors that ensuring the transparency of beneficial ownership is critical for everything from a fair tax system to stopping money-laundering, and that we are now reviewing the global standard to consider how it can be strengthened further. We will be consulting on this later this year. Please watch out for that and be ready to participate. Without the right pressure, governments will not take the action we need to see.

In conclusion, there is much being done, and much more to do. If you work in AML, you make a difference and I have never been so optimistic about the potential for making a much bigger difference, by working smarter and by working together.

Thank you again for the opportunity to join you today and I look forward to discussing a few of these issues in further depth.