Andres Knobel ■ A fund-amental improvement: IMF engagement on its anti-money laundering strategy
An opportunity to influence the IMF to support more transparency in tax, the fight against money laundering and illicit financial flows
A current survey for civil society to comment on the reform of the IMF’s anti-money laundering and combating the financing of terrorism Strategy (AML/CFT Strategy) and a recent IMF paper on the synergies between tax and anti-money laundering are welcome steps, particularly compared to the less progressive country-level tax and austerity recommendation.
IMF signalling a move in the right direction
Against the backlash of the European Court of Justice November 2022 ruling invalidating public access to beneficial ownership information, and the reluctance of the Financial Action Task Force (FATF) to require beneficial ownership registration for trusts in reforming Recommendation 25, and while we wait for more progress on a UN Tax Convention, it is heartening to see the IMF being open to push for more transparency.
In 2020 the IMF had start requiring countries receiving Covid-19 emergency funding to publish the beneficial owners of companies involved in procurement related to the pandemic. More recently, it endorsed the publication of beneficial ownership for companies registered in the United States in the context of the U.S. “Article IV” report, and real estate transactions in the context of Canada’s “Article IV” report. These are tiny steps compared to the need to have fully public beneficial ownership registries for all companies operating in the country but represent great strides. Of course, we want to take this forward, and there now seems to be an opportunity available to civil society organisations.
Engagement with civil society
The IMF has started a consultation with civil society organisations (available until May 14 here) to receive comments on how to improve its anti money laundering and combating the financing of terrorism strategy. As discussed at our panel during the 2023 Spring Meetings (together with Yan Liu, IMF Deputy General Counsel and Marcus Pleyer, former President of the Financial Action Task Force) this is supposed to be more than just a survey to tick the box. It’s still too soon to tell if they will deliver, but the fact that they have committed to publishing the responses, engaging in a proper consultation process with feedback and calls beyond just one survey, and more importantly, the fact that they are inviting our comments before all decisions have been made, all gives us some reasons to remain hopeful.
Importance of improving IMF AML framework
As research recently published shows, the IMF’s AML conditionality may reduce the degree of illicit outflows countries suffered, although this is usually dwarfed by the increases of illicit outflows that are due to other elements of IMF packages such as austerity and regressive taxes. In other words, improving the IMF AML framework may yield even more positive results, while even more pressure should be put on the IMF’s country-level recommendations.
Response to the IMF survey
As for the IMF survey on the reform of the anti-money laundering strategy, the more engagement they get, the more chances there are to have an effective framework aligned with civil society asks.
If anyone wants to get inspired on how the IMF should reform its anti-money laundering strategy, you can download our response.
Our response focuses on the main following points:
The IMF should stop endorsing (eg via its policy and assessments) the weak standards and bias of the Financial Action Task Force and the OECD. Instead, they should go beyond these standards (eg based on our Roadmap to effective beneficial ownership transparency) by:
- Requiring public access to beneficial ownership information, either as a condition to receive funds or as part of technical assistance or its annual surveillance engagements. It’s one thing to question the austerity measures or other debt conditions imposed by the IMF, but we certainly don’t want the money being lent to a country to end up in a politician’s Swiss bank accounts. Transparency conditionality including in relation to beneficial ownership should be required whenever a country receives money, especially when the loan will need to be repaid with taxpayers’ money.
- Focusing on the role of big financial centres and other offshore centres, including the US, Switzerland, the UK and Luxembourg, especially in terms of the flows of illegal and tax avoidance money that they accept in their financial system and broader economy (eg real estate). In essence, the IMF should counterbalance the bias of other organisations by focusing – through its surveillance and financial sector assessment program – on countries topping the Financial Secrecy Index. Those issues have destabilising effects and could be looked at through the IMF mandate of maintaining the stability of the financial sector and broader economy.
- Thinking big, or in the IMF’s terms, by focusing on “macro-critical” issues, such as the lack of beneficial ownership transparency for trusts, investment funds and listed companies, the need for transparency on foreign entities, the need for asset beneficial ownership transparency (towards a global asset registry), the need to improve SWIFT messages to include beneficial ownership and to use it to detect money laundering schemes, to continue to focus on anti-money laundering supervision of banks to prevent illicit flows to be channeled through them, etc.
- Using and endorsing the Tax Justice Network’s publications and assessments as part of their “third-party indicators”, especially our Financial Secrecy Index, Corporate Tax Haven Index, State of Tax Justice, Illicit Financial Flows Tracker, etc.
- Working more on tax issues, especially tax abuse by multinationals, tax evasion as a predicate offense to money laundering, etc.
IMF paper on AML and tax compliance
Following the last point, there is another welcoming step. On 21 April 2023, the IMF published the paper “Leveraging anti-money laundering measures to improve tax compliance and help mobilize domestic revenues”. The paper, which quotes some our research and publications, makes many of the points that we have been calling for, such as:
- The need for more cooperation between tax and anti-money laundering authorities. This is so obvious and yet so ignored. It’s widely known that authorities work in silos, where tax authorities exchange more information with their foreign counterparts than with the local financial intelligence unit in charge of anti-money laundering. This is no surprise, given that standards designed by the OECD prevent the use of bank account information beyond tax purposes (eg for anti-money laundering or anti-corruption), although some recent advances like the Latin American Punta del Este Declaration is trying to foster more cooperation.
- The problem of secrecy and enablers to facilitate both money laundering and tax evasion. It is no surprise that those engaging in money laundering or tax crimes engage in the same strategies that usually involve secrecy, complex ownership structures, enablers, etc. That is why the solutions are also similar. Beneficial ownership transparency is so important, because it can kill many birds with the same transparency stone. Likewise, the paper rightly requires that tax planners and other tax enablers should also be subject to customer due diligence and anti-money laundering requirements.
Recent analysis finds that IMF engagement at country level exacerbates illicit financial flows; but anti-money laundering is one area where IMF engagement has a positive effect. For this reason, strengthening the IMF’s anti-money laundering policy base in comparison to the kneejerk trade liberalisation or financial sector ‘reform’ agenda, can be sufficiently impactful that it is worth civil society engagement.
The IMF has sufficient funds and powers to make its own decisions rather than to blindly follow the OECD or the Financial Action Task Force standards, which are too weak to be effective. We must hope that they take civil society’s comments seriously and improve the strategy so as to achieve real change: including through support for public beneficial ownership, more pressure on big financial centres and more focus on progressive tax issues, in general (eg wealth taxes) and as part of the anti-money laundering reforms (eg more tax and anti-money laundering cooperation, more work on tax as a predicate offense to money laundering, etc.)