Money laundering is a process in which the illicit source of assets obtained or generated by criminal activity is concealed to obscure the link between the funds and the original criminal activity. Terrorist activities may also be financed with funds that represent the proceeds of illegal activities. Perpetrators of these activities constantly seek new ways to launder the funds in order to use them without drawing the attention of authorities to the source of the funds and the links with the underlying crimes. In 2000, the Fund responded to calls from the international community to expand its work in the area of anti-money laundering (AML). After the tragic events of September 11, 2001, the Fund intensified its AML activities and extended them to include combating the financing of terrorism (CFT). Recently, the IMF launched a donor-supported trust fund to finance technical assistance in AML/CFT.

Money laundering and terrorist financing threaten economic and financial stability

The international community has made the fight against money laundering and terrorist financing a priority. The IMF is especially concerned about the possible consequences of money laundering and terrorist financing on its members’ economies and on international financial stability.

Money laundering and terrorist financing activities can undermine the integrity and stability of financial institutions and systems, discourage foreign investment, and distort international capital flows. In an increasingly interconnected world, the problems presented by these activities are global, as are the links between financial stability and financial integrity. Money launderers exploit differences between national anti-money laundering laws and systems, especially in jurisdictions with weak or ineffective controls where they can move their funds more easily. Moreover, problems in one country can quickly spread to other countries in the region or in other parts of the world.

Strong AML/CFT regimes enhance financial sector integrity and stability, which in turn facilitates countries’ integration into the global financial system. They also strengthen governance and fiscal administration. The integrity of national financial systems is essential to financial sector and macroeconomic stability both on a national and international level.

International standards guide effective AML/CFT regimes

The Financial Action Task Force on Money Laundering (FATF), a 34-member inter-governmental body established by the 1989 G-7 Summit in Paris has primary responsibility for developing a worldwide standard for AML and CFT. It works in close cooperation with other key international organizations, including the IMF, the World Bank, the United Nations, and FATF-style regional bodies (FSRBs).

In order to identify steps that national governments should take to implement effective AML programs, the FATF issued a list of recommendations (40 Recommendations), which set out a basic, universally applicable framework of measures covering the criminal justice system, the financial sector, certain non-financial businesses and professions, and mechanisms of international cooperation. This international standard was thoroughly reviewed and updated in 2003. In the wake of the terrorist attacks of September 11, 2001, the FATF expanded its mandate beyond money laundering to address terrorist financing. An extraordinary FATF Plenary on the Financing of Terrorism, held in Washington, D.C. in October 2001, issued eight Special Recommendations on Terrorist Financing (subsequently expanded to nine) as a new international standard to supplement the 40 Recommendations. The work of the FATF, as well as the IMF’s in AML/CFT efforts, has been encouraged by the G-7 and the G-20, most recently in the context of initiatives to address the 2008–2009 international financial crisis.

The IMF’s role in AML/CFT efforts

As a collaborative institution with near universal membership, the IMF is a natural forum for sharing information, developing common approaches to issues, and promoting desirable policies and standards—all of which are critical in the fight against money laundering and the financing of terrorism. In addition, the IMF’s broad experience in conducting financial sector assessments, providing technical assistance in the financial sector, and exercising surveillance over members’ economic systems has been particularly helpful in evaluating countries’ compliance with the international AML/CFT standard and in developing programs to help them address identified shortcomings.

The IMF’s engagement in this area dates from early 2001 and was stepped up significantly following the events of September 11, 2001. In 2004, the IMF Executive Board agreed to make AML/CFT assessments and technical assistance a regular part of IMF work.The IMF has since been a substantial contributor in this area by collaborating with the FATF and FSRBs, conducting AML/CFT assessments, providing technical assistance, and contributing to policy development and research.

The IMF recently launched a donor-supported trust fund to finance technical assistance in AML/CFT. The Multi-Donor Trust Fund—the first in a series of so-called Topical Trust Funds—became operational on May 1, 2009. IMF members have pledged more than US$25 million over five years to contribute to the strengthening of global AML/CFT regimes, using the Fund’s proven expertise and infrastructure. To date, Canada, France, Japan, Korea, Kuwait, Luxembourg, the Netherlands, Norway, Qatar, Saudi Arabia, Switzerland and the United Kingdom have made commitments to contribute to the financing of the Trust Fund.