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First, we need to help countries intensify the fight against corruption and tax evasion . We will soon release new analysis that shows how systemic corruption can seriously undermine a country’s ability to deliver sustainable and inclusive growth.
Large-scale tax evasion is also problematic, because it typically means less investment in health, education, and other public services. It also means higher economic inequality because the most vulnerable are most affected by lower social spending.
AML/CFT measures can help break this vicious economic cycle. A good example is Greece, where the strengthening of the AML framework—with the help of the IMF—facilitated the seizure of hundreds of millions of euros in proceeds from tax crimes.
Second, we need to promote more effective ways of combating the financing of terrorism . This means building on our experiences. Most recently in Sudan, we worked with the government to develop a framework for the implementation of targeted financial sanctions.
But this is not enough. Governments need to increasingly harness the power of financial technology. While fintech can be misused—including through the anonymity of virtual currencies—it can also be a powerful tool to strengthen our defenses against terrorist financing.
Think of machine learning and other artificial intelligence tools that could help detect patterns of suspicious financial flows, including very small transactions. And think of the “distributed ledger” technology that could help protect financial systems against cyber-terrorism.
Third, we need to help ensure that small and fragile economies have access to correspondent-banking services that connect them to the global financial system. There has been a high degree of concern that global banks might cut their correspondent-banking business indiscriminately to minimize the risk of breaching AML/CFT rules.
This would jeopardize the economic wellbeing of a number of countries, including in Africa, the Middle East, emerging Europe, Latin America, and the Caribbean. New research shows that correspondent-banking relationships have indeed been under pressure in many regions between 2011 and 2016.
To be clear, this issue has many dimensions, involving regulators, the financial industry, and the affected countries themselves. The best response is to promote concerted efforts by all stakeholders.
The good news is that FATF recently clarified regulatory expectations under the AML/CFT standard. This may reduce the likelihood of an indiscriminate withdrawal of correspondent-banking relationships. [...]