Deficient regimes of anti-money laundering and countering the financing of terrorism. An analysis of short term economic implications
| Pages | 663-675 |
| DOI | https://doi.org/10.1108/JMLC-02-2020-0015 |
| Date | 06 April 2020 |
| Published date | 06 April 2020 |
| Author | Sisira Dharmasri Jayasekara |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial compliance/regulation,Financial crime |
Deficient regimes of anti-money
laundering and countering the
financing of terrorism
An analysis of short term
economic implications
Sisira Dharmasri Jayasekara
Department of Financial Intelligence Unit, Central Bank of Sri Lanka,
Colombo, Sri Lanka
Abstract
Purpose –The purposesof this paper are to discussthe short-term economic impact of the jurisdictions that
have been identifiedas deficient countries in terms of the regime of anti-money launderingand countering the
financing of terrorismand to identify the probable reasons for the poor resultsof mutual evaluation reports of
the deficientcountries.
Design/methodology/approach –This study uses a case study approach to discuss the short-term
economic impact of the countriesthat are under the International Co-operation Review Group (ICRG)process
due to poor resultsof mutual evaluation reports. The sample of countriesfor the study was selected based on
the Financial Action Task Force (FATF) listing as of November 30, 2019. The objectives of the study are
expected to be achieved by discussing the issues of these jurisdictions based on publicly available
information. However,this study will not consider the long-term economic impact on the countries due to the
observedshort-term nature of the ICRG process.
Findings –This analysis reveals that the ICRG process affects countries in two different
perspectives. First, there are implications on the financial system of a deficient country as a result of
identifying it as a high-risk country. Second, there are some other forms of economicimplications due
to the rigorous ICRG process. The downgrading of the sovereign rating by international and credit
rating agencies is one of such implications that result in adding a risk premium to the country. This
results in increased transaction costs and borrowing costs of deficient countries. Besides, it appears
that the ICRG process impacts the capital and currency markets of deficient countries as a result of
enhanced due diligence process on fund transfers and limitations in corresponding banking
relationships. However, despite these difficulties, some countries have been identified more than once
for the ICRG process. Therefore, such countries have to take measures to strengthen the anti-money
laundering and countering the financing of terrorism (AML/CFT) regime to avoid future listing.
However, long-term sustainability of the countries that were removed from the FATF grey-listing is
also questionable under the current FATF methodology of evaluating countriesbecause of the level of
effectiveness depends on the judgment of assessors on the risk and context of countries rather the
technical compliance.
Research limitations/implications –This study was limited to the countriesthat were in the grey list
as of November30, 2019. The countries exited from the listhave not been considered for the study.
Originality/value –This paper is an original work done by the author by discussing the issues of the
ICRG process in respect of deficient countries in view of strengthening the AML/CFT regimes of such
countries.
Keywords Mutual evaluation reports, ICRG process, Short-term economic impact,
Strategic AML/CFT deficiencies
Paper type Case study
Financing of
terrorism
663
Journalof Money Laundering
Control
Vol.23 No. 3, 2020
pp. 663-675
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-02-2020-0015
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