As the great and the good of the AML/CFT world continue to debate improvements to the regime at the Financial Action Task Force (FATF) plenary in Paris, MONEYVAL (the Council of Europe’s FATF Style Regional Body) has published its latest report on Moldova. And it highlights some issues that we hope the FATF will have addressed by the time the white smoke rises above the OECD building and the report of the plenary’s outcomes is issued.
The Moldovan report is part of MONEYVAL’s 4th round of evaluations, which were designed to look at key and core “and some other important” FATF Recommendations, as well as those Recommendations where the country concerned had been marked poorly (Non or Partially Compliant) in the previous round. As MONEYVAL was ahead of the FATF and the other FSRBs in finishing the previous round, they undertook this round of evaluations instead of waiting for the revised Recommendations and Methodology (here at FATF Watch we call it the 3.5 Round). All very sensible, especially since they decided to have a go at measuring effectiveness, which will be taking up a great deal of time in Paris this week.
But the report does highlight some issues with the evaluation process (and some with the Moldovan AML/CFT regime, obviously, but that’s not the point of this post). The report was published this week, after being adopted at the MONEYVAL meeting in early December last year. But the on-site visit for the report, when the team of assessors spend time in country and gather the information used for the evaluation, was in November 2011. So anyone using the report to inform their country risk assessment of doing business with Moldovan entities or processing transactions from that country, is relying on information that is at least 15 months old. This is not uncommon or atypical of all Mutual Evaluation Reports (MERs); we are not picking on MONEYVAL or their Secretariat. MERs have similar gestation times to large whales. Risk assessments should be timely and accurate, but the information supplied under the FATF/FSRB system is neither – it is noticeable how often a poor MER triggers significant legislative or institutional change (a Good Outcome), rendering out of date and therefore pointless large chunks of the MER. Is your quantitative risk assessment relying on ratings in an outdated, qualitative report?
Of course, the FATF and FSRBs have follow-up procedures, where countries have to submit information on progress. These reports, whilst not a substitute for a full evaluation, can be used to update your knowledge of a country and come to a better assessment of the risk. If you can find them, that is, as the FATF and FSRBs do not appear to have a common publication policy, although all MERs have to be published. Take Russia, for example – a member of the FATF, MONEYVAL and the Eurasian Group (EAG). On the FATF and EAG websites you will find the Russian MER from 2008. Only on the MONEYVAL website will you also find two progress reports from 2009 and 2011. Does the provider of your risk ratings dig that deep?
Another issue, which was alluded to in the FATF’s Public Consultation on the revision of the standards, is the length of MERs. Having taken as long to be born as a whale, they are frequently as indigestible. The report on Moldova only concentrates on a subset of the Recommendations, yet it runs to over 300 pages, with 600 pages of Annexes, consisting of codes, laws, regulations and orders. Fortunately, there is an Executive Summary of about 30 pages and the one screen press release does a pretty good job of identifying the main points. Again, these are fairly typical numbers. Of course, some, if not most, of that information is not designed for the private sector. It is for the Moldovan authorities to understand in detail what they need to fix and to justify the ratings the assessors have given. But a tailored package, designed to identify risk for the private sector, would surely be of great value and in the spirit of the revised FATF Mandate?
The FATF this week is considering its revised Methodology or, probably, Methodologies, one for technical compliance and one for effectiveness of implementation. Those are not easy issues to define and measure, and will put even greater strain on the evaluation system and particularly the FATF/FSRB Secretariats. Hopefully, they will find time to consider the reporting too and will have listened to the private sector. The premise of the original FATF Watch was that much valuable data was lost to the private sector because of the way the FATF and FSRBs reported and published their work. They have made great strides in presentation (for which we like to take some credit!), such as improving their websites to include country profiles, and they have recognised the not always useful nature of MERs in their consultation. Now is the time for more change. Consistent, timely and accurate reports can only benefit the private sector and strengthen the AML/CFT regime.