KBank Capital Market perspective, FATFs slap on the wrist


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KBank Capital Market perspective, FATFs slap on the wrist

  1. 1. KBank Capital Markets Perspectives 20 February 2012 bps ov er LiborFATF’s slap on the wrist Thai CDS 5Y 250Amidst the European credit downgrades, Thailand ishanded a wake up call by FATF (Financial Action Task 230Force) due to its lack of progress on fighting moneylaundering and terrorism financing 210Thailand joins : Algeria, Angola, Antigua and Barbuda, 190Argentina, Bangladesh, Brunei Darussalam, Cambodia,Ecuador, Ghana, Honduras, Indonesia, Kyrgyzstan, 170Mongolia, Morocco, Namibia, Nepal, Nicaragua, Pakistan,Paraguay, Philippines, Sudan, Tajikistan, Tanzania, 150Trinidad and Tobago, Turkmenistan, Venezuela, Vietnam,Yemen, and Zimbabwe 130Inconveniences will be in store as fund transfers will beunder higher scrutiny for legitimacy. Unless Thailand 110follows up on FATF’s recommendations, slippages intothe higher risk group and economic retribution by FATF 90members 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. 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. 3. Thailand is now on FATF’s watch list Share of GDP between FATF members andImplications 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. 4. Thailand is now on FATF’s watch listImplications 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. 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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