The FIU's new policing powers

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A series of proposed amendments to the Financial Intelligence and Anti Money Laundering Act (FIAMLA) will be debated in the National Assembly this week, in the context of the 2014 budget.  These amendments are highly objectionable mainly because the Financial Intelligence Unit (FIU) is being driven to assume the role of an investigatory and regulatory agency instead of focusing on its intelligence functions, with potentially dire consequences for the conduct of business, particularly in the financial sector.

Focus on Intelligence

The FIU is a central agency responsible for receiving, requesting, analyzing, and disseminating to investigatory (e.g., ICAC and Police) and supervisory (e.g., BOM and FSC) authorities disclosures of financial information concerning suspected proceeds of crime, alleged money laundering offences and the financing of terrorism.  Banks, financial institutions, and members of relevant professions and occupations, which include law practitioners and accountants, are required to report suspicious transactions to the FIU.

The suspicious transaction reports (STRs) received from reporting institutions constitute the basis for the FIU to produce intelligence reports, which are referred to ICAC or the Police to provide them with sufficient intelligence analysis to initiate a subsequent investigation, obtain the evidence, including through Court orders for information disclosure, and build a case for prosecution.

The FIU is thus meant to be an intelligence gathering and dissemination agencyin the fight against money laundering, not an investigative body, like ICAC, which is the principal body for investigating corruption and money laundering offences. The Mauritius FIU was conceived as an independent administrative-style body, and set up alongside ICAC, and not housed with it or any other investigatory, law enforcement, or supervisory authority. Falling under the aegis of the ministry of finance, the FIU is headed by a Director and administered by a high level Board.

A changing role

There may be good reasons to revisit he role of the FIU, especially in the light of the observed inadequate response on STRs, and the low level of investigations of money laundering offences.  But any restructuring of the FIU's functions and powers should be undertaken on the basis of a thorough reassessment of the AML institutional framework.  Instead,what we are currently witnessing appears to be an unseemly knee-jerk reaction to the recent Ponzi schemes.

The supervisory and other authorities have managed to elude accountability for these financial scams, putting the blame on illusory regulatory gaps or overlapping responsibilities, police unresponsiveness, and even finding a convenient scapegoat - the FIU.  Through legislative changes, additional regulatory and enforcement powers are thus being thrust on the Bank of Mauritius, and the Financial Services Commission, together with a misguided redirection of the FIU's powers towards investigation and regulation. 

STR-related information requests

The FIU's powers to request information from reporting institutions should not be expanded to permit fishing expeditions, but limited to STRs, in accordance with international AML standards. The proposed amendment to add section 13(2)(aa) gives the FIU powers to obtain further STR-related information based on flimsy grounds. Requesting information from any bank, financial institution etc., merely to ascertain whether it is involved in an STR-related transaction is an open door to potential abuse.

Financial and other reporting institutions are already required by law to file STRs with the FIU whenever they form an opinion that there is something suspect about a transaction. The existing provision in section 13(2)(b), namely, "is, or appears to be involved in a suspicious transaction", is sufficiently broad for the FIU to meet its additional STR-related information needs.

Non STR-related information requests

The FIU should not become a route for investigatory and government bodies, domestic or international, to access confidential bank and other information without the necessary safeguards.The proposed amendment to add section 13(4) requires the furnishing of non-STR related information requested by the FIU under section 13(3), which was added to FIAMLA in 2012, with a provision to override section 64 of the Banking Act with regard to the confidentiality of banking information.

In effect, with these amendments, the FIU will be acting as the arm of an investigation or government agency to access confidential bank information, without a Judge's order.  The dismantling of bank confidentiality seems to be gaining ground in our laws, following the provision for similar unrestricted access to bank customer information by the Enforcement Authority under the Assets Recovery Act.  There are genuine fears that AML and related legislation could be misused, in the absence of minimum legal safeguards.

Another proposed amendment to section 19(1) reinforces the undertaking of fishing expeditions by making an offence of the failure to furnish "any" information requested by the FIU under sections 13(2) and 13(3), instead of the existing provision for furnishing "an" information.

STRs as Court evidence

STRs constitute the basis for FIU intelligence and should not be adduced as evidence before Courts of law, even indirectly in the form of a Certificate from the FIU Director, so as to fully protect the trust and integrity of the STR process, in conformity with international AML standards.  The proposed amendment to section 15 recognizes that STRs are not admissible as evidence in legal proceedings, but nevertheless associates STRs with Court proceedings through a certificate from the FIU Director containing particulars of STRs. 

Prescribing the Director's Certificate as admissible evidence in Court has the potential to undermine the credibility of the STR system and the AML framework.  A case for prosecution should rest on the evidence produced by the investigatory agencies, and not resort to a FIU Director's Certificate which derives from intelligence prior to investigation.  International AML standards call for adequateprovisions to protect the identity of persons who report STRs to the FIU in good faith, and recommendthat STRs be totally exempted from Court proceedings.

Regulation of Professionals

It is anomalous for the FIU to act as a regulator for members of relevant professions and occupations, and to conduct their AML supervision and monitoring.  The proposed amendments to section 10 by the addition of subsections 6,7 and 8 give powers to both the FIU and the designated regulatory bodies to call for information and inspect documents on the business premises of barristers, auditors etc. This responsibility should be entrusted solely to the respective professional associations, such as the Bar Council, the Chamber of Notaries, or the Mauritius Institute of Professional Accountants, without the direct involvement of the FIU.

Disabling the Board

Conferring the FIU Director with unfettered powers to operate without adequate oversight from the Board is bad governance.  The proposed amendments to section 9(4) and the addition of section 12(6) bestow all administrative powers exclusively on the FIU Director, with the Board's functions limited to "an overall review in the manner in which the FIU discharges its functions". 

An IMF/World Bank assessment of our AML regime against International (FATF) AML standards in 2008 also recommended the disempowering of the FIU Board on administrative matters, regardless of its findings that "The arrangements with the current Board appear to work in practice in that the assessors were advised of no instances where the Board has failed to give consent. Also, no evidence was provided to the assessors that indicate that the Board's involvement adversely affects the timing of disseminations. ....The assessors consider that the existing operational arrangements are currently effective in that they do not appear to have adversely affected the dissemination of STR-related disclosures to date, and in effect provide the Director with a useful additional source of legal and industry knowledge to exercise the analytical and dissemination function."

It can be sensibly inferred that institutions such as the IMF and the Egmont Group, a global network of FIUs, hold a greater interest in furthering the exchange of information between FIUs internationally than in ensuring domestic checks and balances on the powers of the FIU Director. But, highly sensitive security and strategic issues are at stake here, and Mauritius must adopt proper safeguards to protect its national interest.  Some degree of Board oversight over information disseminated by the FIU Director, especially to foreign agencies and governments, is warranted.

Weakening the AML framework

The effectiveness of the AML framework is being weakened. The proposed amendments to section 16 curtail the scope for prompt coordination and cooperation between the FIU and supervisory authorities, by no longer allowing a bank, financial institution, etc, to provide its relevant supervisory authority, e.g. the BOM or the FSC, with a copy of the STR submitted to the FIU.  Instead, the supervisory authority will now have to request the FIU for a copy of the STR.

The proposed amendment to section 2, redefining an exempt transaction to allow a CEO or COO of a bank or financial institution to exempt a transaction from AML legislation, is probably intended to facilitate business.  But, it can also create loopholes if not done under strict rules and guidelines laid down by the supervisory authority. 

Under BOM Guidelines, every financial institution must appoint a Money Laundering Reporting Officer who is responsible for AML matters on behalf of the institution.  If the aim is to raise the corporate responsibility for AML matters from the Money Laundering Officer to more senior executives, an appropriate revision of the AML Guidelines issued by supervisory authorities would suffice.

Conclusion

The recent financial scandals have caught all the authorities, without exception, sleeping at the wheel, but their response is to rely mainly on the FIU to pull the chestnuts out of the fire.  The proposed amendments to FIAMLA appear as a risky retailoring of the existing AML institutional framework, and run counter to international AML standards. Whatever may be the desirable change to the current FIU model, proper and adequate safeguards for confidentiality and sound governance cannot be disregarded.

Finally, the public is perhaps entitled to know whether the National Committee for AML, comprising representatives of supervisory, investigatory and prosecution authorities, and the FIU, has endorsed the proposed legislative changes.  The functions of the National Committee include giving advice and making recommendations to the Minister of Finance for legislative, regulatory and policy reforms in respect of AML/CFT.

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