On November 20, 2023, the Executive Board of the International Monetary Fund (IMF) discussed the staff report: “Review of the Fund’s Strategy on Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT).” The staff report takes stock of the implementation of the Fund’s AML/CFT program adopted by the Executive Board in 2018, identifies lessons learned, and seeks the Executive Board’s endorsement of the proposals for the way forward. The report provides an overview of the current approach by staff towards money laundering (ML) and terrorism financing (TF) risks and context, followed by an in-depth analysis of staff’s work under key Fund workstreams—surveillance, financial sector assessment programs (FSAPs), Fund-supported programs, AML/CFT assessments, and capacity development (CD). It also describes how AML/CFT issues have been integrated into other Fund policies and how staff has contributed to the global AML/CFT agenda through close coordination with other stakeholders to leverage synergies and avoid duplication of work. Based on these findings, the paper proposes the way forward for the Fund's AML/CFT strategy by deepening further the integration of financial integrity issues in the Fund's core functions through enhanced focus on AML/CFT issues that have macroeconomic impact and sets out issues for discussion.

Since the 2018 review of the Fund's AML/CFT strategy, the coverage of financial integrity issues has increased across all workstreams. Staff enhanced its understanding of ML/TF risks and of the macroeconomic impact of financial crimes, based on a wide range of quantitative and qualitative data, which has guided the Fund’s engagements with member countries. This review highlights an increased coverage of AML/CFT issues in surveillance and related conditionality in Fund-supported programs. Staff has provided input on AML/CFT in every FSAP, making full use of the flexibility in scope and depth afforded, and contributed to the broader discussion of the stability and soundness of members’ financial sectors, while avoiding duplication with AML/CFT assessments against the international standards set by the Financial Action Task Force (FATF). The increase in regional, multi country, and thematic CD projects has resulted in assistance to a broader range of countries and enhanced flexibility for targeted and more effective and impactful engagements. Staff’s active participation in AML/CFT assessments by the FATF Global Network has effectively contributed to its assessment efforts. The current policy to conduct one to two assessments per year has allowed staff to deliver one assessment per year given the length of these exercises, while also increasing staff’s participation in the review of the quality and consistency of draft assessment reports prepared by other assessor bodies which are essential for the IMF’s work and to help ensure a more evenhanded approach in conducting assessments, and in training assessors and assisting countries preparing for assessments. In addition, staff has participated in an assessment led by a FATF-style regional body, pursuant to the policy endorsed by the Board in 2020.

Executive Board Assessment [1]

Executive Directors welcomed the opportunity to review the Fund’s AML/CFT Strategy. They stressed that addressing ML, TF, and proliferation financing risks is integral to the Fund’s mandate to support the integrity and stability of the international financial system and member countries’ economies. They welcomed the staff’s stocktaking of the progress that has been made and the lessons learned. They agreed with the overall direction to continue to enhance staff’s understanding of the nature and severity of financial integrity risks, with a greater focus on assessing and mitigating negative macroeconomic impacts, which will help staff further prioritize the depth and scope of its engagements. They emphasized that staff should continue to rely on the multipronged approach and synergies across the Fund’s various workstreams to support individual member countries’ efforts in enhancing the effectiveness of their AML/CFT frameworks.

Directors supported the proposed approach on surveillance, where staff will put greater focus on the linkages between financial integrity issues and fiscal, financial sector, and structural priorities. They agreed that staff should continue to cover financial integrity issues under the current principles of engagement and deepen its coverage in an evenhanded manner, commensurate with the risks faced by members, on a mandatory basis when these issues are macro-critical and on a voluntary basis when requested by the member country. With regard to FSAPs, Directors concurred that the current policy of mandatory coverage of AML/CFT issues with flexibility in scope and depth remains appropriate and supported staff’s proposal to put greater emphasis on the nexus between financial integrity and financial stability. Directors also agreed with the proposed approach on Fund supported programs, where staff will continue to use its own judgment and expertise in designing financial integrity and AML/CFT conditionality in line with program objectives and subject to the principles of criticality, parsimony, and avoiding cross conditionality. Directors also noted the importance of better understanding political economy constraints. A number of Directors emphasized the need for flexibility and technical support for members with capacity weaknesses. In this context, a few Directors considered that it is preferable to address AML/CFT issues through tailored CD support.

Directors welcomed the CD activities delivered by staff to member countries and agreed that, in line with the Fund’s CD strategy, staff should continue to provide comprehensive CD support with greater flexibility to respond to the evolving demand from the membership and deepen support for other Fund workstreams. They noted that a better understanding of ML/TF risks will allow staff to continue to further develop the CD program in line with evolving risks such as those related to digital money, laundering of the proceeds of corruption, tax evasion, and environmental crimes. Directors reiterated the need to continue to coordinate with other technical assistance providers to maximize efforts and avoid duplication of efforts.

Directors concurred that staff should continue to integrate financial integrity issues in other Fund policies. They also welcomed staff’s proposal to deepen its engagement with a broader range of external stakeholders, including through enhanced collaboration with other international and regional organizations and civil society, and leverage global and regional partnerships to maximize the impact of the Fund’s AML/CFT work program while focusing on its comparative advantage.

Directors highlighted the importance of the Fund’s continued engagement in AML/CFT assessments with a focus on quality and consistency. They generally supported or were open to staff’s proposal to increase gradually its assessment-related work, to be able to deliver two Fund-led assessments and participate in one FSRB-led assessment per year from FY 2028 onward, without prejudice to other core workstreams and subject to the reallocation of resources to enable this increase. Some Directors, nonetheless, considered the current pace of assessments to be broadly adequate. Directors looked forward to considering staff’s proposal to increase its assessment work in the context of the medium term budget process.

Directors noted that the next review of the AML/CFT Strategy would be expected to be completed within the next five years.

[1] An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm .