egypt experience in adopting aml/ctf measures and challenges

Pakistan 2005 Judge Hesham Ragab

Egyptian FIU

Egypt Experience in adopting AML/CTF

Measures and Challenges


Egyptian FIU

Structure Of Presentation• Legal Frame work of Egyptian AML system• Measures Taken by Supervisors and Financial

institutions others , to implement the enacted frame work.

• Challenges of adopting AML/CTF– Legal – Financial institutions– FIU– LEA

• CFT Challenges with the AML context In Egypt


Egyptian FIU

Reasons Behind listing Egypt as a NCCT

• The absence of a separate comprehensive law.• Absence of detailed rules to identify financial

institutions subject to AML and their duties.• Absence of independent FIU• Absence of proper customers identification

Rules.• Bank secrecy law inflexibility


Egyptian FIU

Legal and Regulatory frame work

• legislative Frame work– AML law n 80 May 2002(Challenges)– Presidential Decree No. 164 issued June 2002

regarding the FIU– Implementing Regulations June 2003– Regulations issued by Supervisory

authorities– Regulations issued by Financial institutions


Egyptian FIU

Main features of the law

• Defining new terms (ML, financial institutions, assets.

• Listing Predicate offences• Criminalizing ML laundering offences• Establishing FIU (Council of Trustees

(challenges)• STRs became an exception to secrecy law


Egyptian FIU

Main features of the law (2)

1- Setting the financial institution obligations

KYC Reporting STRs Keeping records2- Criminal punishment in case of violation

of those rules.


Egyptian FIU

Main features of the law (3)

• Enhancing international criminal cooperation.

• Encouraging financial institution to report. (no criminal liability or civil..)

• Encouraging criminals to report the crime (article 17) in accordance to international conventions (UN convention against transnational organized crimes)


Egyptian FIU

The Executive regulations• Implementing regulations comprise 7 chapters

as follows:• Chapter 1: Definitions• Chapter 2: FIU• Chapter 3: board of trustees• Chapter 4 : Supervisory Entities• Chapter 5: Financial institutions• Chapter 6: Training• Chapter 7: International Cooperation.


Egyptian FIU

Major Highlights of the Executive regulation

FIU• (Receiving, analyzing STRs)• FIU is empowered to Arrange training programs for all relevant entities.• FIU is under obligation to arrange

awareness programs.


Egyptian FIU

Executive regulations

Supervising Authorities (Key player)• Article 21 puts supervising authorities under

obligation to co-ordinate with FIU• Periodic inspection• Regulatory authorities are required to assign a

Contact officer to be responsible of all relevant ML issues

• Standards of KYC rules. (homework) • Standards of suspicion.


Egyptian FIU

Phase 2 :Implementation of legal frame work

Action taken by Financial Sector• Appointing a compliance officer • Setting their own regulations and manuals for combating ML (every single

bank should do it on his own???– KYC, KYB, Record keeping , internal systems to detect any

unusual transactions.– Reporting system starts (STR Forms)– Training plan (starting training) (who provide training)

( who needs training) (level of training)– Updating Customer ID plan (Forms)


Egyptian FIU

Phase 2 :Implementation of legal frame work

Action taken by supervisory authorities- Comprehensive periodical examination Plan

- For all banks once a year which includes all areas- Special examination programs (Standards)

- Questionnaire and a special evaluation sheet- Expanding numbers of AML examiners

- Special Training for examiners (Why!!!)- Follow up with examination (corrective measures)


Egyptian FIU

E.G of CBE examination check list

• AML manuals was circulated to the examined branches• Updates took place with regards to customers • Classifying customers on a risk basis approach• Training of the staff in AML issues • Existing systems used for producing periodical reports (daily, weekly …

etc) on unusual transactions exceeding threshold• Suspicious transaction reports filed by branches to MLRO at head

quarters.• Follow up and measures taken by the Headquarter MLRO to ensure

Compliance>>>• Existing systems used for keeping records and registers at branches.• Examining samples of different transactions ….


Egyptian FIU

FIU Role \Implementation phase

• Models and Forms issued by the unit to implement the law and help financial institutions. (STRs models, annual MLRO report forms)


Egyptian FIU

Number of STRs in 2nd year of implementation

• End February 2004 was 325 STR• 850 STR at end of January 2005

– Financial institution 748– Supervisory Authorities 38– Individuals 35– LAE 16– Counter FIUs 13

• Conviction 2• Inquiries in public prosecution (10)


Egyptian FIU

Phase 2 LEA

• Second phase/ Implementation plan– Law enforcement agencies e.g ministry of

interior (special task force AML units)• Appointing a contact person with FIU• Training for competent officers• Reporting ML Crimes during its normal course

of work.• Investigating STRs sent by the unit (Setting

mechanisms)


Egyptian FIU

Challenges facing Financial institutions (1)

• KYC rules– Excessive requirements of KYC rules

– Different bank approaches (Role of FIU and regulators)– Playing detectives role

– Customers resistance• Regulators need to raise awareness• Coaching staff how to handle issues

– Updating current customers information plans– Classification of customers and risk based

approach. (low, high, medium)• e.g. with respect to updating customer ID


Egyptian FIU


• Difference between Source of funds and source of every single transaction.

• Situation in dealing with real time suspected transactions. ( international wiring) (ist stages of applying the law.– Staff need to learn that their main

responsibility is to report and not to ??????– Avoid tipping off


Egyptian FIU


• Independence of ML officers (seniority) (annual report) (ML officers club meets FIU)

• Feedback of STRs problems!!!– Requesting provisional measures– Referring investigation to judicial authorities– Final verdicts


Egyptian FIU

Challenges Facing FIU and LEA

• Trained Staff with financial background• Dealing with banks questions (regarding STRs)• Coordination between LEA and banks and FIU

(understanding The banks culture)– Building trust (mixed training courses)

• How LEA should deal with banks STRs (Traditional approach)


Egyptian FIU

Legal challenges

• The question of proof (U.S history)• Nature of ML Crimes (complex forms)• Prosecution office and how to handle ML

cases in a efficient way Prosecution office issued a guidelines of

ML cases inquiries and prosecution. Who is the ultimate victim in complex

ML cases?????


Egyptian FIU

International Cooperation Challenges

• Problems of normal international channels (request of information through official channels)

• Egmont group function and perceived role in future. (operational level)

• 94 FIU December 2004• Terrorist financing became a requirement to be

a member.• MOUs


Egyptian FIU

Challenges dealing with Terrorist financing

• Process to build effective CTF systems starts by asking your self these questions???

• What is the link between terrorist financing and ML???

• Do Terrorist organizations launder its money and if so WHY?

• What are similarities between ML and Terrorist financing and differences?

• Why should the AML FIUs be involved in this issue?• Was there good reasons to deal with both issues

under the ambit of AML FIUs?


Egyptian FIU

FATFFinancial action Task Force

• FATF Paris 1989• 1990 40 recommendations, reviewed in

1996.• 2001 FATF mission was extended to TF

and issued the 8 Recommendations.• 2004 the FATF mission was extended to

2012


Egyptian FIU

Sources of Terrorist funds

• Countries• Charities whether or not they know or

don’t….• Self finance

– Investing in legitimate business– Investing in Crimes (Narcoterrorist)


Egyptian FIU

Major international Instruments in Combating Terrorist financing

• FATF 40 recommendations 1990.• International Convention for the Suppression

of the Financing of Terrorism.(1999) France initiative..

• UN Resolution 1373 (After Sept 11) (chapter 7)• 8+1 Special recommendation• What is the relation between them???

– Duplication, supplementing each other.


Egyptian FIU

Relation between The UN Convention and ML

• Financial institutions are under obligation to report suspicious transaction regardless if it is resulted from criminal or legitimate source

• KYC Rules, Keeping records • Taking effective measures to detect or monitor

Transportation of cash.

•


Egyptian FIU

Security Council Resolution

• The Resolution Calls upon all states to become parties to relevant conventions including the SFT convention.


Egyptian FIU

FATF 8 Special recommendations

• Preamble says The FATF has agreed that these

recommendations when combined with the FATF Forty recommendations on ML set out the basic framework to detect, prevent suppress the financing of terrorism.


Egyptian FIU

Terrorist financing Case StudyThe Link

• A foreigner (Z) opened an account in country (A)

• He applied for a loan worth millions of Dollars???

• The bank Filed STR report?• Investigation led to ….


Egyptian FIU

Terrorist financing Case Study• The money will be transferred to other

accounts belongs to companies owned by Mr (Z)

• One of this companies will purchase a Chain of Hotels

• (X) a Citizen of another country will later purchase that company

• X is a member of terrorist group and Z works on his behalf.


Egyptian FIU

Remarks on this case study

• Normal ML suspicious indicators• Take an legitimate business as a front• A layers of transactions and movement

of money through different accounts and names

• The goal is …..


Egyptian FIU

What are the links• Financial institutions and Cross border cash

movements.• The goal and the medium and channels is the

same thus the schemes and techniques are very similar, indicators will be also…

• Using FIU existing capacities would be justified or not.

• Why we have conducted this analysis (Conflict with LEA)


Egyptian FIU

Egyptian AML System Highlights

• Structure of the board of trustees (enforcing AML Agenda)

• Link with Egyptian Banking institute and national center for judicial studies.

• Certified training is going to be mandatory requirement for……

• Creation Of National Coordinating Committee


Egyptian FIU

National Coordinating committeeAML/CFT

• Prime Minister Decree No 63 for 2005• Established within ML Unit and presided by the

Chairman of board of trustees.

• Membership list:• Ministry of foreign affairs- Ministry of social affairs• Ministry of Interior – Public Prosecution• National Security Agency- Administrative Control Ag• CBE – CMA- ML Unit- Egyptian Banking institute.


Egyptian FIU

National Coordinating committeeAML/CFT

• The Committee shall undertake coordination of the national efforts in the field of combating money laundering and financing terrorism:

• And shall contribute to what is required for the implementation of relevant laws, regulations.


Egyptian FIU

Conclusion

• Policy makers and political commitment• Identifying Key players • Building effective AML requires??• Sanctions and role of regulators• Alternative mechanism of coordination

– Compliance club (opening forms)– Contact officers– Coordinating High level Commission.

egypt experience in adopting aml/ctf measures and challenges

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