LONDON, 14 January — The Bahrain Monetary Agency (BMA) on Jan. 9 announced that it had frozen the accounts of two individuals and one bank as part of its drive against money laundering.
The BMA says that the emirate has an excellent level of compliance against money laundering and a low level of financial crime. Bahrain had already banned anonymous accounts and those with fictitious names. All banks have to have internal controls designed to highlight and report potential money laundering activities. In January 2001 Bahrain introduced a new anti-money laundering law and last October in the aftermath of the events of Sept. 11 in the US, the BMA issued new guidelines to all financial entities incorporated in its jusrisdiction on customer identification and other matters relating to anti-money laundering measures.
No doubt the other five Gulf Cooperation Council (GCC) states stress that they have similar stringent measures in place to combat money laundering and other illegal financial activities.
BMA Governor Sheikh Ahmad ibn Muhammad Al-Khalifa, speaking at a recent anti-money laundering conference in Manama confirmed that "in prudent terms alone the banking philosophy ‘know your customer’ is paramount and the increased awareness of financial institutions to money laundering operations and the damage that can be wrought by association with criminals and terrorists, must lead to increased vigilance with regard to customer relationships. Governments demand this, while shareholders in particular, and the insurance industry in general, expect management to adhere to high standards of prudential integrity in the establishment of such relationships."
The Gulf states should be commended for responding quickly to the changed post Sept. 11 international financial architecture especially relating to anti-money laundering measures.
However, lest the danger of any complacency creeping in, there is still a major anomaly that requires urgent attention by the individual GCC countries. Failure to do so could undermine the operations of many of the financial institutions in their jurisdictions especially in their relationships with American and EU counterparts.
The anomaly deals with the status of the membership of the individual Gulf states of the Financial Action Taskforce on Money Laundering (FATF), which was launched by the Group of Seven (G-7) industrialized countries in 1989 to combat money laundering as a result of illegal drug trade proceeds and accounts of corrupt politicians, and now extended to cover terrorist funds.
We all know about the old boys network and the club mentality of Western countries. The club you belong to very often reflected your social status. For generations international agencies and clubs including those in the economic and financial spheres and dominated by the G-7 states, have been run on a similar club culture, primarily because they are the paymasters of these organizations. The IMF, World Bank, Basel Committee, OECD, WTO, FATF and so on, are some institutions in mind. Although to be fair to them there have been some attempts in the last few years for these organizations to be more inclusive by involving the larger emerging countries.
Coming back to FATF and the Gulf states, there is a lot of confusion here, which some British bankers have confirmed to me have negatively affected their post Sept. 11 counterparty and correspondent relationships with Arab banks especially when trying to place Arab short-term funds with corporate end-users from the US and some of the EU states.
A FATF statement confirmed that the "GCC is in a unique position of being a member state of the FATF but with non-FATF countries as its members. Whilst the GCC countries — Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates, have all completed self-assessment surveys, and all but Saudi Arabia have undergone mutual evaluations, none of the GCC countries has yet acquired equivalence status with the FATF members."
This is not a case of semantics, but an ill-thought out strategy of both the GCC and FATF’s membership regulations. The UK is a country member of FATF and not through the EU of which its is member together with other 14 European states. Similarly the US is another country member and not through its membership of NAFTA. The GCC, despite some reforms relating to movement of employment and setting up of businesses, is still some way off from a truly unified customs union, a common passport, currency, financial and legal infrastructure, and so on.
Surely, it is in the interests of the GCC states themselves to be seen as individual members of FATF and in the driving seat against money laundering especially with the focus on terrorist funds and its alleged links with the Islamic world, and the fact that the Western banking system is still prejudiced retroactively by the collapse of BCCI and the subsequent scandal.
Perceptions in banking and business are very important. That is why you have multi-million pound niche businesses compiling, gathering, analyzing, assessing, and commenting on perceptions of risk, economic indicators, performance, internal controls, and even levels of corruption. These businesses range from rating agencies, risk management consultancies, research consultancies, financial media to entities such as Transparency International, which published the annual Corruption Perception Index.
As Linda Renkwitz, Head of Global Compliance at iHilal.com, the pioneering Islamic financial portal based in Dubai Internet City, and someone with over 25 years experience in the field, stresses: "It is both regulation and your position as a business partner that are going to determine what your compliance stance is. Just meeting the regulations is never going to be enough. There are many places in the world where the laws are on the books. But, is there then an auditing process within the regulators to see that the laws are enforced? Those ancillary steps may not take place. So, a bank or business really has to look to its internal make-up."
In a post 11 Sept. world, in which Muslim countries, especially the Arab ones, and anything Islamic has come under extraordinary scrutiny, some say to the point of near-obsession and overkill, both regulators and financial institutions in the Muslim world, should pay heed not only to the letter of the law, but also to the context, the structure, the sociology, and the political and business environments in which they may be applied or operating. The GCC membership of FATF is such a point in question.
