Global flows of illicit financing are a universal affliction and continue to vex authorities and law enforcement agencies across the world as insidious threats present persistent risks to the world’s financial system. These threats do not distinguish by geography, and it is imperative that all countries are committed to implementing the strongest possible defences against illicit financial flows. The Middle East and North Africa (MENA) Region is no exception to this rule, and countries across the Region exhibit the hallmarks of systems that are increasingly determined to protect themselves against the harmful effects of nefarious activity. In this light, efforts that happen at the supra-national level are just as likely to prove instrumental to preventing money laundering and terrorist financing activity as the defences that are applied at a national level.
Tackling Illicit Financial Flows – The FATF’s Footprint
One of the driving forces of the above mentioned coordinated effort is the role of the Financial Action Task Force(FATF); the global best practice setter and watchdog for Anti-Money Laundering and Counter Terrorist Financing(AML/CTF) standards. Currently, the FATF is midway through conducting its Second Round Mutual Evaluations for member countries across the MENA Region, the results of which will have profound implications for international perceptions of each country’s economic security and business viability. In recognition of the importance of the assessments, the footprints of the MENAFATF’s influence are growing more pronounced within regional reform efforts.
One of the most recent 2nd MERs published was Saudi Arabia’s evaluation, which was released in September 2018 and evidenced both where the country has improved its AML and CTF regulations, as well as clear areas that would benefit from further attention. Saudi Arabia underwent its on-site evaluations in November 2017, in the immediate aftermath of issuing two new pieces of legislation to improve its AML framework: Law No. M20 05/02/1439, the Anti-Money Laundering Law (AML Law), and Law No. M21 12/02/1439, the Countering Terrorist Financing Law (CTF Law). Saudi Arabia’s new AML Law in particular introduced extensive revision to the country’s AML machinations, including the establishment of two new Government authorities to play key roles in Saudi Arabia’ ongoing AML efforts, and imposing higher levels of regulatory control on Financial Institutions (FIs) and Designated Non-Financial Businesses and Professions (DNFBPs). In appraisal of these widespread reforms, Saudi Arabia received favourable assessment for its technical compliance with the FATF’s 40 Recommendations for best practice, though the report stated that practical implementation was a critical area of improvement for the country to address.
Likewise, Bahrain’s 2nd MER, published simultaneously with Saudi Arabia’s in September 2018, is suggestive of national authorities’ assent to international calls to tighten AML/CTF regulations. During the process of the report’s compilation, the Central Bank of Bahrain began introducing targeted reforms to address some of the elevated risks and weakness identified by the FATF, for example by increasing the stringency of Enhanced Due Diligence requirements for islamic banks to apply to cross border cash transactions by courier, removing the threshold at which the enhanced procedures need be applied. This was in direct response to the FATF report’s identification of cash courier / cross-border violations for terrorist financing as a key risk for the Bahraini jurisdiction.