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KBank Capital Markets Perspectives                                                                                                                                                             20 February 2012
                                                                                                                                              bps ov er Libor
FATF’s slap on the wrist                                                                                                                                                                 Thai CDS 5Y
                                                                                                                                                 250
Amidst the European credit downgrades, Thailand is
handed a wake up call by FATF (Financial Action Task                                                                                             230
Force) due to its lack of progress on fighting money
laundering and terrorism financing                                                                                                               210
Thailand joins : Algeria, Angola, Antigua and Barbuda,
                                                                                                                                                 190
Argentina, Bangladesh, Brunei Darussalam, Cambodia,
Ecuador, Ghana, Honduras, Indonesia, Kyrgyzstan,                                                                                                 170
Mongolia, Morocco, Namibia, Nepal, Nicaragua, Pakistan,
Paraguay, Philippines, Sudan, Tajikistan, Tanzania,                                                                                              150
Trinidad and Tobago, Turkmenistan, Venezuela, Vietnam,
Yemen, and Zimbabwe                                                                                                                              130
Inconveniences will be in store as fund transfers will be
under higher scrutiny for legitimacy. Unless Thailand                                                                                            110
follows up on FATF’s recommendations, slippages into
the higher risk group and economic retribution by FATF                                                                                             90
members will take its toll
                                                                Kobsidthi Silpachai, CFA
                                                                                                                                                   70
                                                                kobsidthi.s@kasikornbank.com
                                                                                                                                                    Jul-09             Jan-10           Jul-10           Jan-11            Jul-11           Jan-12

 Disclaimer: For private circulation only. The foregoing is for informational purposes only and not to be considered as an offer to buy or sell, or a solicitation of an offer to buy or sell any security. Although the information herein was obtained from
 sources we believe to be reliable, we do not guarantee its accuracy nor do we assume responsibility for any error or mistake contained herein. Further information on the securities referred to herein may be obtained upon request.


                                                                                                                                                                                                                                                                1
Thailand is now on FATF’s watch list
 Amidst the downgrades in Europe as its sovereign debt crisis        FATF issues public statements three times a year on high risk and
 unfolds, Thailand had recently experienced a downgrade of its       non-cooperative jurisdictions.
 own by the Financial Action Task Force on Money Laundering
                                                                     Since October 2011, FATF advises its members (presently there
 (FATF), http://www.fatf-gafi.org. FATF is an international
                                                                     are 34 member nations and 2 regional organizations) to “to apply
 organization established in 1989 by the G7 to combat money
                                                                     counter-measures to protect the international financial system
 laundering and terrorism financing. The organization noted that :
                                                                     from the on-going and substantial money laundering and terrorist
       Despite Thailand’s high-level political commitment to work    financing (ML/TF) risks emanating from: Iran, North Korea
       with the FATF and APG to address its strategic AML/CFT
                                                                     Other nations which the FATF deems as high risk with regards to
       deficiencies, the FATF is not yet satisfied that Thailand
                                                                     addressing the deficiencies or have not committed to an action
       has made sufficient progress in implementing its action
                                                                     plan developed with FATF to combat money laundering and
       plan, and certain strategic deficiencies remain. Thailand
                                                                     terrorism financing are: Cuba, Bolivia, Ethiopia, Kenya,
       should work on implementing its action plan to address
                                                                     Myanmar, Nigeria, São Tomé and Príncipe, Sri Lanka, Syria
       these deficiencies, including by:
                                                                     and Turkey.
       (1) adequately criminalizing terrorist financing (Special
                                                                     Thailand is now in the third group deemed as risky as per the
       Recommendation II);
                                                                     previous FATF statement i.e. these countries have expressed high
       (2) establishing and implementing adequate procedures to      political commitment but have come short on the implementation
       identify and freeze terrorist assets (Special                 of the action plan. Apart from Thailand, other countries in this
       Recommendation III); and                                      category are: Algeria, Angola, Antigua and Barbuda,
                                                                     Argentina, Bangladesh, Brunei Darussalam, Cambodia,
       (3) further strengthening AML/CFT supervision
                                                                     Ecuador, Ghana, Honduras, Indonesia, Kyrgyzstan, Mongolia,
       (Recommendation 23). The FATF encourages Thailand to
                                                                     Morocco, Namibia, Nepal, Nicaragua, Pakistan, Paraguay,
       address its remaining deficiencies and continue the process
                                                                     Philippines, Sudan, Tajikistan, Tanzania, Trinidad and
       of implementing its action plan.
                                                                     Tobago, Turkmenistan, Venezuela, Vietnam, Yemen, and
                                                                     Zimbabwe.
                                                                                                                                   2
Thailand is now on FATF’s watch list
                                                                           Share of GDP between FATF members and
Implications and our thoughts                                                             non-members

   The FATF is a wake up call for Thai authorities to comply or else
   risk joining the second list and hence retribution on cross border
   flows with FATF members.                                             non-FATF
   FAFT members consist of : Argentina, Australia, Austria, Belgium,     members
   Brazil, Canada, China, Denmark, European Commission, Finland,          17%
   France, Germany, Greece, Gulf Co-operation Council, Hong
   Kong, China, Iceland, India, Ireland, Italy, Japan, Kingdom of the
   Netherlands, Luxembourg, Mexico, New Zealand, Norway,
   Portugal, Republic of Korea, Russian Federation, Singapore,
   South Africa, Spain, Sweden, Switzerland, Turkey, United
   Kingdom and the United States
   Note the fact that Turkey is a member is a bit of a paradox
   since it is also on high risk list
   The members of FATF make about 83% of the global economy.
   Should there be retribution by FATF, the impact on the Thai
   economy would be unavoidable.                                                                        FATF
                                                                                                       members
                                                                                                        83%



                                                                                                                   3
Thailand is now on FATF’s watch list
Implications and our thoughts                                                 FATF recommendations for Thailand…what we need to do
   At this stage, the fact that Thailand is on the third list for high-risk      In the earlier statements, FATF noted the recommendations for
   and non-cooperative jurisdiction should cause more of an                      Thailand to comply. Special Recommendation II is now
   inconvenience rather than the onset of sanctions and embargoes                recommendation number 5, Special Recommendation III is now
   by FATF members. Here are some examples of inconveniences:                    recommendation number 6 and Recommendation 23 is now
                                                                                 number 26 (http://www.fatf-gafi.org/recommendations)
          If a Thai parent had to transfer funds to pay for their child’s
          tuition studying in FATF member countries, more                        Recommendation 5: Terrorist financing offence: Countries
          documents are needed to substantiate that the source and               should criminalize terrorist financing on the basis of the Terrorist
          use of the funds are legitimate.                                       Financing Convention, and should criminalize not only the
                                                                                 financing of terrorist acts but also the financing of terrorist
          Thai businesses remitting funds to pay for imported goods
                                                                                 organizations and individual terrorists even in the absence of a link
          are required to submit more documents as for the same
                                                                                 to a specific terrorist act or acts. Countries should ensure that
          reason i.e. to substantiate that the source and use of the
                                                                                 such offences are designated as money laundering predicate
          funds are legitimate.
                                                                                 offences.
   Reputation risk: Potential investors from FATF members may
   have strict corporate guidelines which may restrain investing in
   “watch list” countries for fear that future dividend remittances
   would be heavily scrutinized




                                                                                                                                                  4
Thailand is now on FATF’s watch list
 Recommendation 6: Targeted financial sanctions related to                Recommendation 26: Regulation and supervision of financial
 terrorism and terrorist financing: Countries should implement            institutions: Countries should ensure that financial institutions are
 targeted financial sanctions regimes to comply with United Nations       subject to adequate regulation and supervision and are effectively
 Security Council resolutions relating to the prevention and              implementing the FATF Recommendations. Competent authorities
 suppression of terrorism and terrorist financing. The resolutions        or financial supervisors should take the necessary legal or
 require countries to freeze without delay the funds or other assets      regulatory measures to prevent criminals or their associates from
 of, and to ensure that no funds or other assets are made available,      holding, or being the beneficial owner of, a significant or controlling
 directly or indirectly, to or for the benefit of, any person or entity   interest, or holding a management function in, a financial
 either (i) designated by, or under the authority of, the United          institution. Countries should not approve the establishment, or
 Nations Security Council under Chapter VII of the Charter of the         continued operation, of shell banks.
 United Nations, including in accordance with resolution 1267
                                                                          For financial institutions subject to the Core Principles, the
 (1999) and its successor resolutions; or (ii) designated by that
                                                                          regulatory and supervisory measures that apply for prudential
 country pursuant to resolution 1373 (2001).
                                                                          purposes, and which are also relevant to money laundering and
                                                                          terrorist financing, should apply in a similar manner for AML/CFT
                                                                          purposes. This should include applying consolidated group
                                                                          supervision for AML/CFT purposes.
                                                                          Other financial institutions should be licensed or registered and
                                                                          adequately regulated, and subject to supervision or monitoring for
                                                                          AML/CFT purposes, having regard to the risk of money laundering
                                                                          or terrorist financing in that sector. At a minimum, where financial
                                                                          institutions provide a service of money or value transfer, or of
                                                                          money or currency changing, they should be licensed or
                                                                          registered, and subject to effective systems for monitoring and
                                                                          ensuring compliance with national AML/CFT requirements.

                                                                                                                                              5
6

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KBank Capital Market perspective, FATFs slap on the wrist

  • 1. KBank Capital Markets Perspectives 20 February 2012 bps ov er Libor FATF’s slap on the wrist Thai CDS 5Y 250 Amidst the European credit downgrades, Thailand is handed a wake up call by FATF (Financial Action Task 230 Force) due to its lack of progress on fighting money laundering and terrorism financing 210 Thailand joins : Algeria, Angola, Antigua and Barbuda, 190 Argentina, Bangladesh, Brunei Darussalam, Cambodia, Ecuador, Ghana, Honduras, Indonesia, Kyrgyzstan, 170 Mongolia, Morocco, Namibia, Nepal, Nicaragua, Pakistan, Paraguay, Philippines, Sudan, Tajikistan, Tanzania, 150 Trinidad and Tobago, Turkmenistan, Venezuela, Vietnam, Yemen, and Zimbabwe 130 Inconveniences will be in store as fund transfers will be under higher scrutiny for legitimacy. Unless Thailand 110 follows up on FATF’s recommendations, slippages into the higher risk group and economic retribution by FATF 90 members will take its toll Kobsidthi Silpachai, CFA 70 kobsidthi.s@kasikornbank.com Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Disclaimer: For private circulation only. The foregoing is for informational purposes only and not to be considered as an offer to buy or sell, or a solicitation of an offer to buy or sell any security. Although the information herein was obtained from sources we believe to be reliable, we do not guarantee its accuracy nor do we assume responsibility for any error or mistake contained herein. Further information on the securities referred to herein may be obtained upon request. 1
  • 2. Thailand is now on FATF’s watch list Amidst the downgrades in Europe as its sovereign debt crisis FATF issues public statements three times a year on high risk and unfolds, Thailand had recently experienced a downgrade of its non-cooperative jurisdictions. own by the Financial Action Task Force on Money Laundering Since October 2011, FATF advises its members (presently there (FATF), http://www.fatf-gafi.org. FATF is an international are 34 member nations and 2 regional organizations) to “to apply organization established in 1989 by the G7 to combat money counter-measures to protect the international financial system laundering and terrorism financing. The organization noted that : from the on-going and substantial money laundering and terrorist Despite Thailand’s high-level political commitment to work financing (ML/TF) risks emanating from: Iran, North Korea with the FATF and APG to address its strategic AML/CFT Other nations which the FATF deems as high risk with regards to deficiencies, the FATF is not yet satisfied that Thailand addressing the deficiencies or have not committed to an action has made sufficient progress in implementing its action plan developed with FATF to combat money laundering and plan, and certain strategic deficiencies remain. Thailand terrorism financing are: Cuba, Bolivia, Ethiopia, Kenya, should work on implementing its action plan to address Myanmar, Nigeria, São Tomé and Príncipe, Sri Lanka, Syria these deficiencies, including by: and Turkey. (1) adequately criminalizing terrorist financing (Special Thailand is now in the third group deemed as risky as per the Recommendation II); previous FATF statement i.e. these countries have expressed high (2) establishing and implementing adequate procedures to political commitment but have come short on the implementation identify and freeze terrorist assets (Special of the action plan. Apart from Thailand, other countries in this Recommendation III); and category are: Algeria, Angola, Antigua and Barbuda, Argentina, Bangladesh, Brunei Darussalam, Cambodia, (3) further strengthening AML/CFT supervision Ecuador, Ghana, Honduras, Indonesia, Kyrgyzstan, Mongolia, (Recommendation 23). The FATF encourages Thailand to Morocco, Namibia, Nepal, Nicaragua, Pakistan, Paraguay, address its remaining deficiencies and continue the process Philippines, Sudan, Tajikistan, Tanzania, Trinidad and of implementing its action plan. Tobago, Turkmenistan, Venezuela, Vietnam, Yemen, and Zimbabwe. 2
  • 3. Thailand is now on FATF’s watch list Share of GDP between FATF members and Implications and our thoughts non-members The FATF is a wake up call for Thai authorities to comply or else risk joining the second list and hence retribution on cross border flows with FATF members. non-FATF FAFT members consist of : Argentina, Australia, Austria, Belgium, members Brazil, Canada, China, Denmark, European Commission, Finland, 17% France, Germany, Greece, Gulf Co-operation Council, Hong Kong, China, Iceland, India, Ireland, Italy, Japan, Kingdom of the Netherlands, Luxembourg, Mexico, New Zealand, Norway, Portugal, Republic of Korea, Russian Federation, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, United Kingdom and the United States Note the fact that Turkey is a member is a bit of a paradox since it is also on high risk list The members of FATF make about 83% of the global economy. Should there be retribution by FATF, the impact on the Thai economy would be unavoidable. FATF members 83% 3
  • 4. Thailand is now on FATF’s watch list Implications and our thoughts FATF recommendations for Thailand…what we need to do At this stage, the fact that Thailand is on the third list for high-risk In the earlier statements, FATF noted the recommendations for and non-cooperative jurisdiction should cause more of an Thailand to comply. Special Recommendation II is now inconvenience rather than the onset of sanctions and embargoes recommendation number 5, Special Recommendation III is now by FATF members. Here are some examples of inconveniences: recommendation number 6 and Recommendation 23 is now number 26 (http://www.fatf-gafi.org/recommendations) If a Thai parent had to transfer funds to pay for their child’s tuition studying in FATF member countries, more Recommendation 5: Terrorist financing offence: Countries documents are needed to substantiate that the source and should criminalize terrorist financing on the basis of the Terrorist use of the funds are legitimate. Financing Convention, and should criminalize not only the financing of terrorist acts but also the financing of terrorist Thai businesses remitting funds to pay for imported goods organizations and individual terrorists even in the absence of a link are required to submit more documents as for the same to a specific terrorist act or acts. Countries should ensure that reason i.e. to substantiate that the source and use of the such offences are designated as money laundering predicate funds are legitimate. offences. Reputation risk: Potential investors from FATF members may have strict corporate guidelines which may restrain investing in “watch list” countries for fear that future dividend remittances would be heavily scrutinized 4
  • 5. Thailand is now on FATF’s watch list Recommendation 6: Targeted financial sanctions related to Recommendation 26: Regulation and supervision of financial terrorism and terrorist financing: Countries should implement institutions: Countries should ensure that financial institutions are targeted financial sanctions regimes to comply with United Nations subject to adequate regulation and supervision and are effectively Security Council resolutions relating to the prevention and implementing the FATF Recommendations. Competent authorities suppression of terrorism and terrorist financing. The resolutions or financial supervisors should take the necessary legal or require countries to freeze without delay the funds or other assets regulatory measures to prevent criminals or their associates from of, and to ensure that no funds or other assets are made available, holding, or being the beneficial owner of, a significant or controlling directly or indirectly, to or for the benefit of, any person or entity interest, or holding a management function in, a financial either (i) designated by, or under the authority of, the United institution. Countries should not approve the establishment, or Nations Security Council under Chapter VII of the Charter of the continued operation, of shell banks. United Nations, including in accordance with resolution 1267 For financial institutions subject to the Core Principles, the (1999) and its successor resolutions; or (ii) designated by that regulatory and supervisory measures that apply for prudential country pursuant to resolution 1373 (2001). purposes, and which are also relevant to money laundering and terrorist financing, should apply in a similar manner for AML/CFT purposes. This should include applying consolidated group supervision for AML/CFT purposes. Other financial institutions should be licensed or registered and adequately regulated, and subject to supervision or monitoring for AML/CFT purposes, having regard to the risk of money laundering or terrorist financing in that sector. At a minimum, where financial institutions provide a service of money or value transfer, or of money or currency changing, they should be licensed or registered, and subject to effective systems for monitoring and ensuring compliance with national AML/CFT requirements. 5
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