GUEST ARTICLE

Challenges in Fighting the Tax Evasion Crime Menace

ANNOUNCEMENTS

Fintelekt Mobile App for AML/CFT now available on iOS

COUNTRY SPOTLIGHT

Indonesia’s AML/CFT Regime

FintelektAML Quarterly Newsletter

June 2019

Welcome to the fifth edition of the AMLQuarterly Newsletter, Fintelekt’spublication designed to bring to you thelatest trends, regulatory updates, newsand views related to anti-moneylaundering and countering of terroristfinancing (AML/CFT).

This edition features an article oneffective STRs as the Outcome of aRobust AML/CFT Programme and a guestarticle by our guest contributor SachinShah.

Fintelekt has recently launched a MobileApp for AML/CFT General AwarenessTraining and Assessment. The first-of-its-kind third party Mobile App in the regionis now available on Android as well asiOS. Banks and financial institutions mayuse the App to train their entire front-lineand customer facing staff on AML/CFTgeneral awareness.

Meanwhile, you are welcome tocontribute articles, whitepapers, or apoint of view related to AML/CFT/FCC.

EditorArpita BedekarDirector – Marketing, Fintelekt Advisory Services arpita@fintelekt.com

EDITOR’S NOTE

CONTENTS

COVER STORY 3

Effective STRs as the Outcome of a Robust AML/CFT Programme

GUEST ARTICLE 8

Challenges in Fighting the Tax Evasion Crime Menace

NEW RELEASE 13

Fintelekt’s AML/CFT Mobile App now available on iOS

ANNOUCEMENT 14

FCAP Hall of Fame

INTERVIEW 15

N. M. Eftakharul Alam Bhuiya, Nagad

COUNTRY SPOTLIGHT 17

Indonesia’s AML/CFT Regime

NEWS 19

Asia Regulatory Updates

Effective STRs as the Outcome of a Robust AML/CFT Programme

An ‘effective’ Suspicious Transaction Report (STR) orSuspicious Activity Report (SAR) is the cornerstone of asuccessful Anti-Money Laundering (AML)/ Countering theFinancing of Terrorism (CFT) programme. The large volumes ofinvestment flowing into AML/CFT programmes worldwide couldbe justified only if they generate credible leads on moneylaundering and other anti-social and illegal activities for thecountry’s law enforcement agencies.

How many STRs?

Although there are no set indicators for how many STRs afinancial institution or indeed a country must produce in a year,numbers published by FIUs in different countries empiricallyindicate a direct correlation between the number of STRs filedto variables such as size of the economy, its relative AML/CFTmaturity, stringency of regulation, and the number of reportingentities (there could of course be exceptions to this).

3

The large volumes of investment

flowing into AML/CFT

programmes worldwide could

be justified only if they generate

credible leads on money laundering

and other anti-social and illegal activities for the

country’s law enforcement

agencies.

Some indicative numbers are listed below:

• US – 2,171,173 SARs in 2018• UK – 463,938 SARs in 2018• India – 1,436,340 STRs in 2017-18

(this was in fact an exceptional year forFIU-IND due to demonetisation in India inNovember 2017)

• Hong Kong – 73,889 STRs in 2018• Sri Lanka – 925 STRs in 2017• Philippines – 132,305 STRs in 2016

There are some who may argue that a lowernumber of STRs does not necessarily signifya weaker AML regime, but that criminals maybe deterred from laundering money in thatinstitution/country. However, estimatessuggest that between USD 800 million andUSD 2 trillion is laundered every yearglobally. Moreover, reportedly not more than1 to 2 per cent of laundered money isactually detected and seized, despite theincreasingly sophisticated systems investedinto by banks and financial institutions. Insuch a scenario, arguing that a lower numberof STRs is suggestive of a better AML eco-system would be counter-intuitive.

Further, there are also no clear indicators onwhat proportion of alerts generated by aninstitution should get converted into an STR.While a higher proportion may signal moreefficiency, compliance officers often arguethat tweaking the AML monitoringprogramme is a continuous and time-consuming exercise. The risk of the systemmissing out on positive alerts if thresholdsare set too high, makes them opt for moreencompassing scenarios. Institutions reporta rate of false positive alerts ranginganywhere between 90 and 99 per cent -which means an increasing number ofresources are being spent on picking outneedles from a haystack.

An ‘effective’ STR

Despite the ambiguity around the number ofSTRs that should be filed, there is littledisagreement amongst AML complianceofficers that an ‘effective’ STR is one that iscomplete, accurate and timely - with all thenecessary customer details, transactional

COVER STORY

history, investigative and scrutiny details,presented - and containing an intuitivelysound grounds of suspicion.

While the definition of an effective STR maybe straightforward and non-controversial,regulators often lament the poor quality ofSTRs received from reporting entities. Theypoint out several problems, including:

• Incorrect or inadequate customer andtransaction data, which ties back intopoor due diligence and follow-ups withcustomers

• Incorrectly filled out fields whilesubmitting the STR, often due to a ‘copy-paste’ approach to filing

• Low quality narrative or insufficientexplanation of the grounds ofsuspicion, which makes FIU analystseither reject the STR or go back to theinstitution for clarifications

• Delayed submission of STRs leading toprecious time lost in apprehending theoffender

• STRs submitted with no real grounds ofsuspicion only to keep the organisationsafe from punitive penalties.

4

In Fintelekt's interactions with

reporting entities as well as regulators

around Asia, we have lately seen increasing focus in this area, as

FIUs are spending time and resources in

communicating the gaps and pointing

out errors in STR filing so as to improve the

efficiency of the system as a whole.

At the level of the Financial Intelligence Units(FIUs), which are almost always struggling with lackof resources, ineffectual STRs clog the system andlead to inordinate delays in disseminating theinformation forward. Dummy or incorrect datafilled into fields - especially fields such as uniqueidentifiers - often lead to false linkages betweenunrelated STRs, creating further problems for FIUanalysts.

In Fintelekt's interactions with reporting entities aswell as regulators around Asia, we have lately seenincreasing focus in this area, as FIUs are spendingtime and resources in communicating the gapsand pointing out errors in STR filing so as toimprove the efficiency of the system as a whole.

What leads to effective STRs?

A robust AML/CFT programme would in itself beexpected to lead to effective STRs as it wouldassume appropriate functioning of the followingimportant elements of the framework:

• Effective governance that fixes responsibilitiesfor oversight and management of the AMLprogramme. This would lead to a culture ofcompliance and a system geared up to takingon compliant business and identifyingsuspicious behaviour on a routine basis

• The use of the right AML monitoring technologyfor the size of the organisation, optimised forthe red flag indicators and typologies bestsuited to the organisational profile, andreducing the number of false positives

• Continuous training for AML compliance staffenabling them to prioritise the AML alertscorrectly and in turn lead to better quality STRs.

As the FATF and its regional counterparts are alsoincreasingly emphasizing on effectiveimplementation of AML/CFT programmes, thequality of STRs (and not just numbers) will becomean important parameter for evaluation andassessments. Institutions with a mere tick-in-the-box approach to AML compliance will find itdifficult to fulfill this requirement and cannot hopeto become useful contributors in the fight againstmoney laundering and other financial crimes.

COVER STORY

5

ASIA AML/CFT SUMMIT 2019September 11 - 12, 2019

Hotel Intercontinental Hanoi Landmark 72, Hanoi, Vietnam

AGENDA

• The FATF Recommendations: 21st Century Neo-Colonialism or a Path to a Safer World?

• Lowering the Risk of Compliance Failure

• Combating Trade-Based Money Laundering by Strengthening the Eco-system

• Terrorism Financing, Cross Border Intelligence and Border Security

• The Role of Technology in the Future of AML/CFT Compliance

• Mitigating the Sanctions Risk in AML Compliance

• The Changing APAC FCC Landscape: A Year in Review

• Proliferation Financing

• Reducing Global Suffering Through Vigilant Compliance

• Tax Base Erosion, Profit Sharing and the Intersection of Money Laundering and Tax Avoidance

• Learning from India’s Capital Markets KYC Utility Initiative

summits.fintelekt.com

Nicholas McTaggartMurinbin Consulting

Archana KotechaLiberty Shared

Youngbee DaleAnti-Human Trafficking

Consultant

Tom KeatingeRUSI

Hari Kumar NepalMinistry of Finance,

Nepal

Guy SheppardSWIFT

Dr. John CoyneASPII

Abu Hena Md. RazeeHassan; Head – BFIU and Co-Chair, APGML

Lindsay ChanFormer Director, APG

Atty Mel Georgie RacelaExecutive Director

AML Council, Philippines

Peiling TsaiChief of Policy Unit, AML Office Taiwan

Bernard LawEx-FIU Head, Hong Kong

ASIA AML/CFT SUMMIT 2019September 11 - 12, 2019

Hotel Intercontinental Hanoi Landmark 72, Hanoi, Vietnam

#Fintelekt

Early Bird(Up to Jun 30)

Regular(From Jul 1)

Standard Fee USD 675 USD 775

Regulators and Academia

USD 375 USD 475

Delegate Fee

Price per delegate includes access to all sessions of the Summit, exhibition areas, tea/coffee and lunch on both days of the Summit (September 11 and 12, 2019)

Accommodation

Specially negotiated rates are available at the venue hotel -Intercontinental Hanoi Landmark 72.

To book your room at the special rates, please write to us with your requirements at contact@fintelekt.com.

Please note that rooms are limited. You are advised to book as soon as possible to ensure availability.

Click Here to Register and Pay Online

Sachin Shah is a CAMS accredited financial crime compliance

professional and has 19 years of experience in the financial services industry having exposure in India,

Middle East and APAC region. He is a subject matter enthusiast and has

interest in the field of financial crime compliance and is passionate about writing on current trends and issues

in the worlds of financial crime compliance.

Introduction

Globally, over the past two decades, therehas been increasing sensitivity around taxevasion and facilitation thereof by financialinstitutions (FIs). This eventually led to thecategorization of tax evasion as a moneylaundering predicate offense by the FinancialAction Task Force (FATF) in 2012. Tax evasionis an illegal action in which a person or entitydeliberately avoids paying a true tax liabilityby concealment or misrepresentation ofbeneficial ownership of assets, income andgains, or otherwise fraudulent conduct,designed to divert money from the publicrevenue.

Before we dig deeper into the topic of taxevasion it is imperative to understand thatother forms of tax evasion such as taxplanning, avoidance and non-compliancefalling short of criminal liability are differentdomains and can’t be treated as equivalentof tax evasion. Tax planning involvesorganizing one’s affairs in the most taxefficient manner within the intent of the lawand, typically, with an honest belief that it isa legal method of reducing a tax liability. Taxavoidance refers to conduct that, while stillwithin the letter of the law, generally involvesthe deliberate exploitation of weaknesses inthe tax system.

GUEST ARTICLE

8

Challenges in Fighting the Tax Evasion

Crime Menace

Sachin ShahFinancial Crime Compliance

Subject Matter Enthusiast

Those caught evading taxes are generallysubject to criminal charges and substantialpenalties.

Now, more than ever, the need for increasedtransparency, inter-agency co-operation, andinternational collaboration is undeniable andduly recognized. The fight against tax crime isbeing actively pursued by governmentsaround the world. Jurisdictions havecomprehensive laws that criminalize taxoffences, and the ability to apply strongpenalties, including lengthy prison sentences,substantial fines, asset forfeiture and a rangeof alternative sanctions. Jurisdictionsgenerally have a wide range of investigativeand enforcement powers as well as access torelevant data and intelligence. In additionjurisdictions are increasingly taking a strategicapproach to addressing tax offences, whichincludes targeting key risks and leveragingtools for co-operation with other lawenforcement agencies, both domestically andinternationally. At the same time, tax crimeinvestigations are also been increasinglyundertaken with greater efficiency and fewerresources.

Regulatory Framework

In recent years, tax evasion, and thefacilitation thereof, have gained greater globalprominence from tax authorities, regulatorsand the public. This increase in prominencehas led to FIs seeking to enhance their focuson their customers’ tax affairs, as well asconduct by persons acting on the FIs’ behalfthat may constitute the facilitation of taxevasion. The Government appears to begiving serious thought to the idea that taxevasion must be declared a criminal offencewith all the attendant consequences.

GUEST ARTICLE

In addition, the bodies/ groups orassociations like Wolfsberg and OECD havealso come-up with their guidance papers tohelp governments and FIs to fight the taxevasion crime. It will assist not only all thegovernments and agencies who alreadyhave adequate framework to tackle themenace of tax evasion, but also thegovernments, regulators and the FIs whoare gearing-up to tackle the problem.

For example, in the US, tax evasion isconsidered a criminal offence which canlead to penalty or imprisonment, or both.Section 7201 of the IRS Code prescribes afine of not more than USD 1,00,000 orimprisonment for not more than 5 years orboth, for tax evasion. The annual taxevasion in the US is estimated at USD 100billion. Hence for a country like the US,such global guidance will assist them inleveraging their existing framework andmaking it more robust and effective. Onthe other hand for countries like Indiawhere tax administration is notoriouslyknown to be slack and there is a lot ofpolitical interference, such global guidancewill help in devising a country level strategyto tackle tax evasion as predicate offense.

Similarly many more jurisdictions haveintroduced legal and regulatory changes toput this requirement into effect and havemandated that FIs incorporate tax evasioncontrols in their anti-money laundering(AML) framework. International financialcenters have been extremely sensitive tobeing perceived as tax havens. Regulatorsin such centers have mandated their FIs toensure robust tax evasion related controlsso that the jurisdiction is not exposed toreputational risk. Concurrently, due tosevere enforcement actions, FIs areexpected to drastically strengthen theirAML controls framework. Lack ofappropriate tax evasion controls wouldobviously tantamount to inadequate AMLcontrols.

Challenges Faced by FIs

While tax evasion facilitation risk is distinctfrom the underlying predicate offence (i.e.

9

Many financial integrity NGOs estimate that roughly USD 1 trillion flows illegally out of

developing countries annually due to crime, corruption and tax

evasion.

not governed by money launderingregulations), AML controls and proceduresplay an important role in the identification oftax evasion facilitation and it may, therefore,be fitting to consider both in tandem.Furthermore, in order to ensure compliancewith all applicable laws and regulations, FIsmay need to consider developing anoverarching approach that is organizationallybroader than the AML framework. Thisapproach may entail recognizing, leveragingand enhancing existing controls across theorganization (predominantly AML, tax andconduct-related controls) and appropriatelydeploying specialist resources (e.g. in-housetax experts) to support the implementationand on-going maintenance of such aprogramme. However there are severalchallenges faced by FIs across the globe todesign an effective compliance framework todetect and deter the tax evasion. Few ofthese challenges are explained as below

Risk assessment - One of the biggestchallenges is the inadequate risk assessment.Even though adequate and effective riskassessment is an industry-wide issue,however FI who already have embedded theenterprise risk assessment in theircompliance framework, they still are not ableto demonstrate that they have assessed andunderstood the potential risk and exposurethey face in relation to money laundering inthe form of tax evasion, and the facilitationthereof. Either the risk assessmentundertaken don’t cover tax evasion relatedrisks with sufficient granularity or the scaleand detail of methodologies used to assessthe risk are not proportionate to the level ofrisk and nature of the business.

Policy and Procedures - Existing financialcrime compliance, conduct and tax (includingtax transparency regimes) procedures andcontrols are not in order to address the risksof customer tax evasion, and the facilitationthereof. Though the senior management isaware of the impending compliance andreputational risks, there is still a lack ofexecutional commitment to detect andprevent tax evasion. The top to bottomapproach is restricted only to paper andthere are several operational challenges inthe execution of policy and procedures.

GUEST ARTICLE

There are still instances where AML/CTFpolicy and procedures don’t state explicitlythat tax evasion is a predicate offence tomoney laundering. In addition, theprocedures also lack guidance for supportingstaff so as to be enable them to identify FI-specified indicators of tax evasion.

Customer Due Diligence (CDD) and Red flagsFIs should be sensitive to risk indicatorsand/or red flags that may suggest anincreased risk of tax evasion. Following a risk-based approach to the extent practicable orconsidered appropriate, they should have amechanism in place to identify anddocument the relevant red flags / riskindicators. However, a lot of FIs arestruggling to synchronize their CDD relatedcontrols to carve out, define and documentthe red flags / risk indicators related to taxevasion.

For example, the policies and proceduresrelated to obtaining information on Source ofWealth (SoW) and Source of Funds (SoF) atthe time of customer on-boarding are notgranular on the SoW/SoF corroboration.There are several instances where therequired SoW/SoF corroboration is notassessed appropriately and hence therequired red-flags cannot be triggered.Similarly assessment of the commercialrationale for complex or opaque structures isanother challenge where the policy is silenton the action required for a specific instanceof red flags / indicators observed.

Monitoring and Screening - One of the keypillars of any compliance framework is themonitoring and screening process and Fis’existing Financial Crime Compliance (FCC)monitoring framework will play a part inmitigating customer tax evasion risks too.However the biggest challenge is either FIsdon’t have adequate monitoring andscreening process in-terms of automatedsolution or if they have, the required taxevasion related rules and thresholds are notdefined in the monitoring and screeningsystems. Another challenge mentioned in therecent guidance by The Wolfsberg Group isthat that there is an opportunity for nationalgovernments to aid in the efforts to preventtax evasion by publishing or permitting

10

access to information on prosecutions andsettlements for tax evasion by bothindividuals and companies. This wouldallow FIs to identify potentially undetectedaccounts which would be of direct interestto the relevant tax authorities.

Training and Development - The otherchallenge is the inclusion of specificmaterial relating to tax evasion risks, aswell as seeking out the appropriateescalation channels (e.g. whistleblowingprocedures) in the mandatory trainingsimparted to all the staff on fightingfinancial crime. Also there are no targetedtailored training on risk indicators and/orred flags and common tax evasiontypologies for the staff working in areasidentified by the FI as high risk.

Specialist Resources in Compliance Team -Although tax evasion and moneylaundering are operationally distinctprocesses, they share similar sophisticatedobfuscation techniques and the success ofeach crime depends on the ability to hidethe financial trail of the income. Hence it isvery imperative for the FIs to ensure thatthey have specialist in-house resources intheir transaction monitoring team who notonly are AML experts but also understandthe tax evasion related red-flags and co-relate them with the money launderingoffence. Unfortunately this is not thegeneral practice followed by the FIs and inthe industry at large and hence we havelack of such specialist resources to supportthe implementation and on-goingmaintenance of such tax evasion cum AMLprogramme.

Tackling Tax Evasion Crime - A ThreeLayered Approach

Since the last few decades, the fightagainst tax crime is being actively pursuedby governments around the world.Jurisdictions have comprehensive laws thatcriminalize tax offences, and the ability toapply strong penalties, including lengthyprison sentences, substantial fines, assetforfeiture and a range of alternativesanctions. There is an increasingly

GUEST ARTICLE

11

coordinated and collaborative approachfollowed by governments and regulatorsacross the globe. Jurisdictions now generallyhave a wide range of investigative andenforcement powers as well as access torelevant data and intelligence.

Although jurisdictions are taking a strategicapproach to addressing tax offences, whichincludes targeting key risks and leveraging thetools for co-operation with other lawenforcement agencies, both domestically andinternationally. However there is lot to bedone and a three pronged approach will bethe right strategy to deter, detect and reportthe tax evasion related crime. This threepronged approach includes a coordinatedapproach between Governments (includinggovernment bodies/FIUs), industry bodies andassociations and the FIs. If all these threestakeholders follow a collaborative approach itwill surely have a positive impact on theefforts to curb the menace of tax evasioncrime. This approach is aptly covered by OECDin their publication of the ten global principlesto fight tax crime.

Considering the same guidance in-light of thechallenges mentioned in above paragraphs,following actionable is expected by each of thestakeholders:

Government- Ensure tax offence is criminalized- Provide investigative and enforcement powers to LEAs- Promoting inter-governmental coordination and executing

IGAs with other jurisdictions- Creating an effective framework for domestic inter-agency

co-operation- Promoting assisting the regulator for international co-

operation mechanism

Industry efforts- Support and promote domestic and international inter

agency cooperation- Assist the government and the regulator in devising an

effective strategy for addressing tax crimes- Framing industry approach note on the collaborative

approach for the FIs to fight the tax crimes

Institution efforts- Embedding tax evasion related risk in the enterprise wide

risk assessment- Having robust policy and procedures giving clear direction

to the organization and the stakeholders on their roles andresponsibilities in tacking tax evasion relatedinstances/transactions.

- Effective CDD framework to detect the tax evasion relatedred flags at the initial stage of on-boarding itself so as toavoid the bad guys to enter the financial system and use itfor tax evasion.

- Tone from the top for effective monitoring and screeningsystems

- Pro-active approach and the required budgetary support torecruit specialist resources within the respectivedepartments.

- Having a robust and targeted training and developmentprogram targeted to tax crime for the staff

- Creating a robust governance and assurance framework.

Conclusion

We need to take a serious view of tax evasion and declare it asa criminal offence. This will require rewriting the law andstrengthening the tax administration. This is an opportunetime since the public mood is now seriously against all formsof tax evasion. This can be achieved by having a pro-activeand supportive government and regulatory vision andstrategy which will holistically cover the financial servicesindustry and which will finally benefit each of the FI to tacklethe challenges in fighting the tax evasion crime.

GUEST ARTICLE

12

If all these three stakeholders

(Governments, industry bodies

and associations and the FIs) follow

a collaborative approach it will

surely have a positive impact on the efforts to curb the menace of tax

evasion crime.

Disclaimer – The author is a subject matter enthusiast and the views expressed is solely of the author in his personal capacityand does not, in any way, represent the views of his employer or any other entity related directly or indirectly with the author.

Fintelekt Mobile App for AML/CFT

Awareness Training and

Assessment now available on iOS

Mobile App Features

Fintelekt announces the launch of itsAML/CFT Awareness Training andAssessment Mobile App on the iOS platform.The App is now available across iPhone, iPodTouch, and iPad devices, in addition to allAndroid devices.

The first of its-kind third party Mobile Appin the region is specifically designed fortraining of the entire workforce within anorganisation and is aimed at enabling themto gain the required awareness aboutAML/CFT from a practical perspective. Thecourse has been developed after in-depthdiscussions with money laundering reportingofficers, compliance professionals, regulatorsand AML experts, in order to ensuresuitability and relevance.

The App helps people employed with banksand financial institutions to:➢ Gain an understanding of Anti-Money

Laundering (AML), Know Your Customer(KYC) and Combating Financing ofTerrorism (CFT).

➢ Be aware of the various indicators ofsuspicious transactions or ‘red flags’ whiledealing with customers.

➢ Understand the appropriate actions to betaken by an employee or the financialinstitution, when faced with suspicioustransactions or customers.

For more information, get in touch atcontact@fintelekt.com or +91 93700 78917.

NEW RELEASE

13

Easy to download and use

Content reviewed and updated regularly

7 easy-to-understand modules followed by quick assessments

Can be viewed any number of times

Includes practical case studies

Certificate and marksheet emailed to candidates

Currently, the Mobile App is customised and available in India, Bangladesh, Sri Lanka and Bhutan.

June 2019

Fintelekt’s Advanced AML/CFT Professional(FCAP) Training is a four-day residentialintensive training program designed as anadvanced refresher for bankers andfinancial services

ANNOUNCEMENT

Fintelekt

Certified AML/CFT

Professional:

Hall of Fame

professionals across Asia, leading to theFCAP certification. Fintelekt completed its8th batch of FCAP Training in April 2019 atMumbai, India.

▪ Shyamal Sarker (Agrani Bank, Bangladesh)▪ Seema Basyal (Citizen Bank International,

Nepal)▪ Anita Upadhayay (Laxmi Bank, Nepal)▪ N. M. Eftakharul Alam Bhuiya (Nagad,

Bangladesh)▪ Biplab Guragain (NCC Bank, Nepal)▪ Vinaya Prasad Adhikary (NCC Bank, Nepal)▪ Shovit Sharma (Nepal Clearing House, Nepal)▪ Subash Thapa (Nepal Clearing House, Nepal)▪ Arundhati Bhattacharjee (Rupali Bank,

Bangladesh)▪ Faruk E Azam Md Noman (Rupali Bank,

Bangladesh)▪ Faysal Hayder (Rupali Bank, Bangladesh)▪ Gautam Chandra Roy (Rupali Bank,

Bangladesh)

14

▪ Jahir (Rupali Bank, Bangladesh)▪ Kazi Abdur Rahman (Rupali Bank,

Bangladesh)▪ Md Ahsan Ullah (Rupali Bank, Bangladesh)▪ Md Iqbal Hossain Kha (Rupali Bank,

Bangladesh)▪ Md Mizanur Rahman (Rupali Bank,

Bangladesh)▪ Md Nizam Uddin (Rupali Bank, Bangladesh)▪ Mir Abu Naser Joy (Rupali Bank, Bangladesh)▪ Mohammad Shafiul Alam (Rupali Bank,

Bangladesh)▪ Pronob Kumar Barmon (Rupali Bank,

Bangladesh)▪ SK Aminur Rahman (Rupali Bank,

Bangladesh)▪ Taj Uddin Ahamed (Rupali Bank, Bangladesh)

FCAP Batch 8 – April 2019, Mumbai

In conversation with N. M. EftakharulAlam Bhuiya, Head of Legal & Compliance and Company Secretary, Nagad

Fintelekt: As a new company in Bangladeshwhat were the main considerations whilesetting up the AML compliance governanceframework?

Eftakharul: Our Company (Nagad) haslaunched commercially very recently on26th March 2019. Since it has just launchedrecently, my primary objective is to remaincompliant from the very beginning. Hence,we want to comply with the applicable lawsand regulatory guidelines, monitortransactions regularly, introduce risk-basedapproach to the risk factors, implement aninternal AML-CFT policy in line withapplicable laws and the regulatoryguidelines.

With financial inclusion being one of thegoals of the Company, are there anyspecific AML compliance challenges thatyou are encountering or expect toencounter? How do you plan to addressthese challenges?

In Bangladesh, still 66% of the totalpopulation are out of the bankingtransactions. Hence, financial inclusion isone of our goals and over-the-countertransactions (using someone else’s digitalaccount) are a common phenomenon inthis industry where customer’s duediligence cannot be performed properly.Therefore, there is a chance of moneylaundering using someone else’s digital

INTERVIEW

15

N. M. Eftakharul Alam Bhuiya has broad legal background with

more than twelve years of experience in corporate-

commercial law. He has obtained his LL.B (Hons) and LL.M in Commercial Law from the

University of Dhaka, Bangladesh. He is an enrolled Advocate of the

Supreme Court of Bangladesh. Prior to starting practicing, he

worked as acting Head of Legal Department, bKash. He has also

worked as in-house Legal Counsel for Grameenphone Ltd.

and other reputed companies and law firms.

account. To avoid such risk, we areencouraging self-registration to ensure thatall the customers (users) have their ownaccount when they are availing our services.We have introduced self-registration alongwith registration from agent or other channelpartners which is a much more effective andefficient solution. Further, this solution hasbeen introduced for the first time inBangladesh for this industry.

Going forward what would be your prioritiesas the AML Compliance Head of yourCompany?

Going forward, we have several priorities: (a)From the very beginning we haveimplemented integration with nationalelection commission database to cross-verifythe identity of each customer with the saiddatabase, (b) we are working on raisingsystem-generated red flag issues, (c) and weare going to screen against the UN SanctionList and the Ministry of Home Affairs’ SanctionList during registration and at the time of

INTERVIEW

transaction, (d) we have also formed thefunction Compliance Committee, which is across-functional team to maintain the riskregister and to address the issues accordingly,(e) we have a vast plan to conduct training forthe employees and channel partners, (f)conduct awareness session for the customersthrough SMS, IVR, TVC, print media, and othermeans, (g) investigate and field visit to theconcerned area, etc.

How did the FCAP program by Fintelekt helpyou in your objectives?

The FCAP of Fintelekt has helped me in manyrespects. The resource persons were reallyexperienced in this field, their experience andpresentations gave me many insights in whichI am planning to introduce within myorganization. Again, the participants werefrom different countries and organizations.Therefore, their experience and way ofaddressing any issue was invaluable. I lookforward to engage with Fintelekt in the future.

16

N. M. Eftakharul Alam Bhuiya, Head of Legal & Compliance and Company Secretary, Nagad, Bangladesh receiving his FCAP Certificate from Shirish Pathak,

Managing Director, Fintelekt Advisory Services at Fintelekt Certified AML-CFT Professional (FCAP) Training in Mumbai held from April 8-11, 2019

Country Summary:Indonesia

Overview

The Republic of Indonesia (Capital – Jakarta)is a country in Southeast Asia bordering EastTimor, Malaysia and Papua New Guinea. It isthe world's largest island country, with morethan seventeen thousand islands. It is thefourth most populous jurisdiction in theworld. With a GDP of more than 1 trillion USD(as of 2017), Indonesia is Southeast Asia'slargest economy.

Banking Industry

As of March 2018, Indonesia had 115commercial banks and 1,630 rural banks. Thefour largest banks are state-owned holdingover 45% of bank assets. The banking sectorcontributed around 78% of total financialsector assets in the country (as of Dec 2018).

The Financial Services Authority (“OtoritasJasa Keuangan” or OJK) regulates key aspectsof the banking and financial system, includingbank regulation and supervision, whereasBank Indonesia (BI), the Central Bank ofIndonesia, regulates payment systems andconducts foreign exchange supervision.

Indonesia has been encouraging thedevelopment of Islamic banking and theIndonesian Islamic banking sector currentlyhas 13 full-service Islamic banks, 21 bankswith Islamic finance units, and 167 Islamicrural banks.

Last year, the government warmed to theidea of foreign takeovers and mergers,pushing banks to consolidate in order to

COUNTRY SPOTLIGHT

Category Value

Population 269.1 million

(in 2019)GDP Growth Rate# 5.17%

(in 2018)Inflation# 3.32%

(May 2019)Currency Indonesian

Rupiah (IDR)Currency Exchange

Rate*1 USD =

14,269.70 IDRWorld Bank Ease of

Doing Business 2018

Rank

73, out of 190

countries

Transparency

International’s

Corruption Perception

Index 2018 Rank

38, out of 180

countries

# Source: Bank Sentral Republik Indonesia*Source: www.xe.com (On June 13, 2019)

17

strengthen the national banking system.Mergers and acquisitions in the bankingindustry are projected to continue, asforeign investors from Japan and SouthKorea have begun to acquire local banks,while big state-owned and private bankshave shown interest in acquiring thesmaller ones.

As of December 2018, Non-PerformingLoans (NPLs) stood at 2.37% which can beconsidered moderate and manageable.Capital levels of Indonesian banks are in therange of 22.97% (as of December 2018)which is comfortably higher than what ismandated as per BCBS norms.

AML/CFT Regime

Indonesia became a member of theAsia/Pacific Group on Money Laundering(APG) in August 1999 and held the rotatingAPG Co-chair role from 2006 to 2008. Thelast mutual evaluation of Indonesia wasconducted in November 2017.

Indonesia was placed under “jurisdictionswith strategic AML/CFT deficiencies” by FATFin 2012 as the jurisdiction was deemedweak in terms of measures to combatML/TF risks. In 2015, the country was takenout of this list due to progress in regulation.

Based on APG’s Mutual Evaluation Reporton Indonesia (September 2018), there is ahigh risk of terrorist financing in thecountry. The report identified corruption,narcotics and taxation as the three mainmoney laundering generating predicate

COUNTRY SPOTLIGHT

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offences in the country. In the non-financialsector, real estate and motor vehiclespossess the highest quantum of risk.Indonesia’s geographic location along withits vast coastline, numerous islands and avast number of difficult to control locationsmakes it vulnerable to smugglers and drugtraffickers using the same for illegal entryand exit.

Basel AML Index

In 2018, Indonesia was ranked 52 on theBasel AML Index, published by the BaselInstitute on Governance, which providesrisk ratings based on the quality of acountry’s framework for AML and CFT andrelated factors such as perceived levels ofcorruption, financial sector standards andpublic transparency. Out of 129, a rank of 1denotes the highest risk of moneylaundering and terrorist financing in thecountry, while 129 would be the lowest risk.

Indonesian Financial TransactionReports and Analysis Centre (INTRAC)

Indonesia established a FinancialIntelligence Unit (FIU) called the PusatPelaporan dan Analysis Transaksi Keuangan(PPATK), also known as the IndonesianFinancial Transaction Reports and AnalysisCentre (INTRAC) in 2002. INTRAC firstbecame known in Indonesia in Act No. 15 of2002 on Money Laundering.

INTRAC exists as an independent body andis directly responsible to the President.

NEWS

Asia Regulatory Updates

Central Board of Direct Taxes India issuesnew guidelines

The Central Board of Direct Taxes in Indiahas tightened the framework forcompounding of offences in the categoriesof money laundering, black money act/non-disclosure of foreign assets and possessionof benami (anonymous) assets cases.

The guidelines define the types of cases thatcannot be compounded by classifyingoffences into three different categories.

Nepal bans Chinese digital wallets

Nepal’s central bank banned Chinese digitalwallets Alipay and WeChat to prevent theloss of foreign currency earnings fromChinese tourists.

Lakhs of Chinese tourists visit Nepal everyyear, and most of them transact using digitalwallets. This results in Nepal losing out, sincethe actual transactions take place in China.

HKMA sets out AML/CFT best practicesfor SME onboarding

The HKMA (Hong Kong MonetaryAuthority) has written to AIs (authorisedinstitutions) offering guidance on theapplication of AML/CFT measures whenonboarding SME customers.

The circular follows a thematic review ofhow AIs assess ML/TF risks with regard toSMEs, how they apply AML/CFT measureswhen onboarding SME customers, and theextent to which an RBA (risk-basedapproach) is adopted in such measures.

Central Bank of Lao PDR warns againstcryptocurrencies

The central bank of Lao - The Bank of theLao PDR - is the latest in the region to warncommercial banks, businesses andmembers of the public not to buy, sell oruse cryptocurrency for money transactionsas the practice is illegal in the country.

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