Financial Crime World

Title: Timor-Leste’s Anti-Money Laundering and Counter-Terrorist Financing Regime: New Progress and Challenges

Background

Amid the Asia-Pacific region, the small and developing nation of Timor-Leste continues to strengthen its anti-money laundering (AML) and counter-terrorist financing (CTF) regime. This media article sheds light on the country’s progress and lingering challenges based on a Mutual Evaluation Report by the Asia/Pacific Group on Money Laundering (APG).

Mutual Evaluation by APG - July 2012

In July 2012, Timor-Leste underwent a mutual evaluation by the APG, which identified several areas of improvement for the country’s AML/CTF measures.

Areas of Vulnerability

The APG report disclosed that Timor-Leste is vulnerable to various illicit activities, such as organized crime, smuggling, and potentially terrorist activities, due to:

  1. its dollarized and cash-based economy
  2. weak land and maritime border controls

Sources of Illicit Proceeds

The majority of proceeds of crime in Timor-Leste are believed to stem from corruption, tax avoidance, smuggling, human trafficking, counterfeiting of currency, illegal gambling, and prostitution.

Criminalization of Money Laundering and Terrorist Financing

Despite the criminalization of money laundering and terrorist financing, there have been no prosecutions or convictions since the enactment of the related offenses in 2009. However, there are currently three investigations into potential money laundering cases.

New Regulatory Requirements

Despite the challenges, Timor-Leste has made progress in expanding and deepening its AML/CTF measures. In December 2011, the country passed a new AML/CTF Law, which:

  1. allows for preventative measures such as customer due diligence and suspicious transaction reporting
  2. establishes a financial intelligence unit within the Central Bank of Timor-Leste

Implementation Challenges

The practical establishment and implementation of the financial intelligence unit and new regulatory requirements are yet to be seen. Timor-Leste also plans to develop a comprehensive National AML/CTF Strategy and promote its implementation through:

  1. on-site examinations manuals
  2. updated procedures for financial institutions
  3. additional training for supervisors

Concerns and Future Steps

The APG report also noted concerns regarding the effectiveness of cross-border declarations and the lack of a dedicated mechanism for coordinated exchange of information between domestic agencies and with other countries. While border control measures have improved recently, the border with Indonesia remains a primary concern due to its porous nature.

To address these challenges, Timor-Leste plans to:

  1. strengthen cross-border cooperation and information exchange mechanisms
  2. improve border control measures
  3. increase public awareness and education on AML/CTF issues.