Illicit Financial Flows: a Private Sector IFC Legal Department Perspective Strategy FY17-FY20 l Lima, March 14, 2019 Lucas Diez Suarez Compliance Counsel 1
IFC Non-financial Risk Management Structure Corporate Corporate Risk CEO Committees Committee VP, Compliance Risk and ESG and General Counsel Environment , Legal Social and Governance Business Risk and Compliance
CBR BR is a one-stop shop for providing advice on management and mitigation of non-financial risk CBR (except ESG and operational risk) 3
CBR Subject M t Mat atter A Area eas Integrity Function Offshore Financial Material Non-Public AML/CFT Centers (OFCs) Information (MNPI) IFC Policies & Tax Behaviors & Integrity Due Procedures Practices Diligence (IDD)/ Market Conduct Screening IFC Board & Stakeholder (Mobilization) Engagement IFC Liaison to INT Operational Conflicts Data Access & of Interest Controls WBG Sanctions Compliance Aspects of Nominee Directorship 4
Thre hree S Subj bject Ma Matters re s related t to o IF IFF 1. Int Integr egrit ity D Due ue Dil ilig igenc ence (ID e (IDD) 2. . AML AML/CF /CFT 3. . Tax c condu duct ct Thes ese t e three ee sub ubje jects ar are e closel ely int interrel elat ated
IDD P D Proc ocess Wide Scope Deep Analysis 6
IDD P D Proc ocess I II One or more issues below ? Sanctions Criminal activities IDD Assess Civil proceedings Research Risk Source of funds Political influence Use of third parties Other significant issues Review by CBR Management decision 7
Integri rity Prog ogre ress Chall llenges • Signif ific ican ant c corrupt ptio ion • Sig Significant g gap ap sc scan andals an and d between c compli liance o on enac actment o of new l w laws ws paper an pape and d compliance have put c corrupt ptio ion o on in in pr prac actice top o p of the ag agenda a Check ck-th the-bo box a x approach • Old ld w ways o s of d doing b busi siness ss • Ch Chan ange in in pe perceptions • Deve velo loping c compliance • Developme pment o of • cul ulture ta takes ti time and nd complian iance p programs ams compromise
AML/CFT FT: D : Due ue Dil iligenc igence o e over er Financ Financial ial Ins Instit itutio ions ns (FIs (FIs) • IF IFC fre frequently u y uses F FIs Is t to o re reach a a la larg rger n number of of benefic iciar iarie ies s • IF IFC re relies on on the he A AML/ ML/CFT c con ontrols of of the he F FI I to o con onduct DD over b benefic iciar iarie ies • Assess ssme ment o of AML/CF /CFT c controls i s include des e s ensurin ing that at: • The The F FI I ha has AML/ ML/CFT p proc ocedures/controls t tha hat a are re al alig igned in d in in international st stan andards, in indu dustry b best st prac pr actices an and d appl applicable l laws ws • Controls ols a are a adequately i ly imple lemented
AML/CFT FT: D : Due ue Dil iligenc igence o e over er Financ Financial ial Ins Instit itutio ions ns II II Required for all projects with financial institutions AML Questionnaire Annual for Clients Reporting by Client
AML/C /CFT FT Prog ogre ress Chall llenges • Importan ant progre ress • Imple lementation on o of a true duri ring t the he la last f few y years risk sk-base ased a d approac ach The he w wor ork of F of FATF a and Clie ient r ris isk p profile an and • • FRS RSBs ha has prod oduced enhanced d due d diligence signif nificant ant i improvement nts a at measures mea the j th jur urisdictional a and nd FI FI • Tran ansa sactio ion m monit itorin ing lev evel syste tems Increased a awareness of • Technology i is key added d value o of AML/CF CFT • • Capa Capacity g gaps aps an and d compli liance Impr mprovemen ements ts i in govern rnance i issues • compli liance p programs • Tr Trade-based mo d money launderi ring
Tax C Condu duct ct: O OFC P Policy cy a and d Tax Due D Dilige gence ce • OFC po C policy • Asse ssessment o of busin siness r rat ationale f for the u use se o of interm rmediate e entities • Rest stric icts t s the u use o of intermediat diate e entit ities i s in ju jurisdictions r rat ated as as NC C or PC b PC by the G Global F Forum • Tax ax D Due Dil iligence Pil Pilot • Syst stemat atic ic r revie iew o w of tax s x structures a s and practic ices • Risk sk-base ased a d approach f focusin sing o on tax c x collectio ion a at the pr project h host c country
Tax C Condu duct ct: O OFC P Policy cy a and d Tax Due D Dilige gence ce Tax related scandals/ TDD Pilot negative Host country Tax Treaties: Focus: news re- SPVs with investment minimal Four Key through legal intermediate presence International Cross-border jurisdiction related party Tax Issues transactions
Tax C Condu duct ct Prog ogre ress Chall llenges • Improveme ments i s in tax x • Diffic icultie ies t s to keep u p up govern rnance a at the with n wit new c w creat ative corpo porate l level as as a a struct ctures es resu sult o of internat atio ional al One lo loophole c clo lose ses s and • ano nother o one ne opens ns stan andar dards ds • Challe llenges b by some EOIR IR • de developing c countries in in AE AEOI • BEPs imp mpleme menting • internat atio ional al s standar ards ds Resources a and nd capacity •
Key Ta Takeaways 1. We e do not o only ma manage r risk, w when enever po possible, w we e pu push clien ents to raise t e thei eir stand ndar ards 2. . Commitmen ent f from m clients is es essential, t they n need eed t to see t ee the e added ed v value This a appr pproach t to i integ egrity i is an es essential pa part o of I IFC’s DN DNA; t this i is w what 3. . ena nables us us t to m make o our ur operations sustai ainab nable, e even i n in challeng ngin ing marke kets 4. . We don’t ’t alw lways g s get i it ri right 15
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