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20 October 2008

HM Treasury warns businesses of serious threats posed to the international financial system

Important:

This constitutes advice issued by HM Treasury about serious threats posed to the integrity of the international financial system.

The Financial Action Task Force (FATF) warned on 16th October 2008 of the higher risks of money laundering and terrorist financing posed by deficiencies in the anti-money laundering and countering-terrorist financing (AML/CTF) systems in Iran and Uzbekistan.

The FATF has also drawn attention to AML/CTF deficiencies in respect of Turkmenistan, Pakistan, São Tomé and the northern part of Cyprus.

The UK fully supports the work of the FATF on these matters and HM Treasury agrees with the FATF’s assessments.

All UK businesses regulated under the Money Laundering Regulations 2007 whether financial institutions or other regulated persons should treat transactions associated with Iran and Uzbekistan as situations that by their nature can present a higher risk of money laundering or terrorist financing, and which therefore require increased scrutiny and enhanced due diligence.

Other persons authorised by the Financial Services Authority should also take this advice into account in their systems and controls to counter financial crime, and take appropriate actions to minimise associated risks.

The attention of UK financial institutions regulated for money laundering purposes is also drawn to the FATF statements in respect of Turkmenistan, Pakistan and São Tomé, and the risks that they continue to present.

The UK welcomes the progress made by the northern part of Cyprus. Financial institutions should be aware that while the northern part of Cyprus has substantially addressed the FATF’s concerns, there will continue to be a heightened risk whilst it continues to improve its AML/CTF systems. 

This advice is effective immediately.

The FATF statement says:

Iran

The FATF welcomes Iran’s recent engagement with the international community on anti-money laundering, notes the initial steps taken towards remedying the deficiencies in this area, and urges Iran to address the remaining weaknesses.

The FATF is particularly concerned that the lack of corresponding effort by Iran to address the risk of terrorist financing, continues to pose a serious threat to the integrity of the international financial system. Urgent action to address this vulnerability is necessary.

The FATF calls on its members, and urges all jurisdictions, to strengthen preventive measures to protect their financial sectors from this risk.

The FATF is prepared to engage directly in assisting Iran in decisively addressing the weaknesses in its AML/CFT regime.

Uzbekistan

The FATF takes note of the action plan prepared by Uzbekistan to address deficiencies in its AML/CFT regime. 

The FATF is increasingly concerned that the continuing failure by Uzbekistan to restore its AML/CFT regime poses a serious threat to the integrity of the international financial system. Urgent action to address this vulnerability and to meet international standards is necessary.

The FATF calls on its members, and urges all jurisdictions, to strengthen preventive measures to protect their financial sectors from this risk.

The FATF, along with the Eurasian Group, is prepared to engage directly in assisting Uzbekistan in developing a robust AML/CFT regime.

Turkmenistan

The FATF notes Turkmenistan’s efforts towards adopting AML legislation. However, financial institutions should be aware that the lack of an AML/CFT regime in Turkmenistan constitutes a money laundering/terrorist financing vulnerability in the international financial system.  Turkmenistan is urged to continue its efforts to establish a comprehensive AML/CFT regime that meets international AML/CFT standards and to work closely with the Eurasian Group and the International Monetary Fund to achieve this.

São Tomé and Príncipe

The FATF reaffirms its public statement of 28 February 2008 regarding the money laundering and financing of terrorism risks posed by Pakistan and São Tome and Principe.

AML/CFT improvements in the northern part of Cyprus

The FATF welcomes the significant progress made in the northern part of Cyprus and notes that the northern part of Cyprus has substantially addressed the AML/CFT deficiencies that the FATF had identified. FATF encourages the northern part of Cyprus to continue to improve its AML/CFT system. Implementation will be monitored through appropriate mechanisms.

Notes for Editors

1. The Financial Action Task Force is an inter-governmental body established by the G7 in 1989 and today includes as members 32 countries and territories and two regional organisations.  The UK held the FATF presidency from July 2007 to June 2008.

2. In February 2007 the Government published 'The financial challenge to crime and terrorism' that sets out its approach to using financial tools to deter crime and terrorism; detect it when it happens; and, disrupt those responsible and hold them to account for their actions. The FATF is central to the UK's international objectives within this strategy.

3. The Money Laundering Regulations 2007 require firms to put in place policies, procedures or systems that prevent money laundering or terrorist financing. Regulation 14(1)(b) requires regulated businesses to apply enhanced customer due diligence and enhanced ongoing monitoring on a risk-sensitive basis to “any other situation which by its nature can present a higher risk of money laundering or terrorist financing”.

4. The FSA requires firms to take reasonable care to establish and maintain systems and controls for countering the risk that the firm might be used to further financial crime.

5. For further information about what the Treasury is doing to combat financial crime, and how to subscribe to financial crime alerts, visit: Financial crime and terrorist financing.

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