Editorial
| DOI | https://doi.org/10.1108/JMLC-05-2018-0038 |
| Pages | 250-252 |
| Published date | 02 July 2018 |
| Date | 02 July 2018 |
| Author | Louis De Koker |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial compliance/regulation,Financial crime |
Editorial
ML/FT risk and financial inclusion of the poor: increase the focus on actual
usage of formal financial services
In the past 10 years, FATF has done much to improve its understanding of the complex
interplay between financialintegrity objectives and financial inclusion. This work, however,
has not extended to analyze and assessthe integrity risks related to financial exclusion. This
leaves FATF’s risk-basedapproach to ML/FT unbalanced, focused mainly on criminal risks
to the formal financial system andsomewhat blind to the integrity risks of exclusion thatill-
considered though FATF-compliantAML/CFT strategies may hold.
Financial exclusion, the shadow economy and tax evasion were not integrated into
the FATF strategy until rather late. In the mid-2000s, FATF stakeholders still refused
to acknowledge that AML/CFT compliance with FATF’s standards could hamper the
implementation of policies to increase access by the poor to the financial system. It
required intensive effort and lobbying by a group of South African development
economists and AML/CFT experts to secure funding for a five-country study on the
impact of AML/CFT measures on financial inclusion. The study was deemed too
sensitive for funding by major FATF stakeholders, who were concerned that financial
inclusion would undermine AML/CFT measures. With FIRST Initiative funding and
the personal support by a number of experts, the study was eventually launched.When
its findings were circulated in 2007 and finally published in 2008, evidence was
available that changed FATF’s approach (Bester et al., 2008;Isern and De Koker, 2009).
This study found that “(t)he pursuit of financial inclusion and the pursuit of an effective
AML/CFT regime are complementary and not conflicting financial sector policy
objectives”. In 2009, the president of FATF embraced the findings and language of the
report when he held in Lesotho addressing the ESAAMLG Ministers that “Financial
inclusion and an effective financial integrity regime can –and should –be
complementary national policy objectives”(Vlaanderen, 2009).
FATF has since adopted a 2011 guidancepaper on financial inclusion, which was revised
in 2013 and enhanced by a supplement on simplified due diligence in 2017. The current
mutual evaluation methodology also enables assessors of the effectiveness of a country’s
AML/CFT system to consider aspects of its financial inclusion policies, where they deem
that relevant.
The reasons why FATF embraced financial inclusion are alluded in a few documents
and speeches. In essence, financial inclusion is viewed as a means to limit untraceable,
informal cash transactions that compromise the ability of countries to track money
laundering and terrorist financing. As expressed by the then Princess Máxima of The
Netherlands in a 2010 address to FATF:
[Financial inclusion] helps regulators and supervisors monitor and trace the movement and
sources of money. It helps law enforcement by diminishing the anonymity of informal
transactions. In short, financial inclusion contributes to financial integrity (Princess, 2010).
These objectives are important to FATF. It has been actively providing guidance and
countering large-scale de-risking account closures to ensure that the implementation of its
standards do not hamper the provision of financialservices to the poor and marginalized. It
is submitted, however, that a focus on the provision of services and account opening only
will not achieve the integrity resultsthat FATF desires.
JMLC
21,3
250
Journalof Money Laundering
Control
Vol.21 No. 3, 2018
pp. 250-252
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-05-2018-0038
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