IMF raises concerns over AML/CFT regimes in Islamic banking

The International Monetary Fund (IMF) has released a paper on issues related to Islamic finance, notably the challenges in providing transparency and some difficulty in tracking the money trail in anti-money laundering and counter financing of terrorism (AML/CFT) regimes.

The IMF officials who wrote the paper concluded that, “some specific features of Islamic finance could present vulnerabilities that require a different approach in the design of AML/CFT regimes.”

Partnership concerns

Specifically, the report suggests one issue is the nature of the relationship between Islamic banks and their customers, which is often formed on a partnership basis.

“The partnership dimension may distort the institution/client relationship from an AML/CFT perspective and render more difficult the adequate fulfillment of obligations, such as ongoing customer due diligence or suspicious transaction reporting,” according to the paper.

Client activities

It suggests that some preventive procedures, such as the reporting of clients’ suspicious transactions, could be compromised because of a potential conflict of interest.

“Second, in the event the client is a money launderer or a terrorist financier, the institution as its partner could be considered jointly liable for ML/TF,” the paper concludes.

The report, ‘Islamic Finance and Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT)’ can be found here.

Categories: Trade Based Financial crimes News

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