Timor-Leste’s AML/CFT Regime Lacks Key Requirements, Gaps Remain

Dili, Timor-Leste - Despite New Laws, Significant Gaps Remain in Regulatory Framework

Despite the introduction of new anti-money laundering and combating the financing of terrorism (AML/CFT) laws, significant gaps remain in Timor-Leste’s regulatory framework, according to a recent report.

Shortcomings in AML/CFT Regime

Lack of explicit provisions for reduced or simplified customer due diligence (CDD) requirements
- No requirement for financial institutions to obtain approval from senior management before establishing new correspondent banking relationships or documenting AML/CFT responsibilities
Insufficient measures to address increased risks of money laundering and terrorist financing in non-face-to-face business relationships or transactions
No enforceable instruction permitting banks or other financial institutions to rely on third-party services to perform CDD

No mechanism for information sharing among competent authorities and financial institutions, which may impede the ability of authorities to access information required to combat money laundering and terrorist financing
Record-keeping requirements set out in Article 15 of the AML/CFT Law and Article 9 of Public Instruction 03/2003, but some areas require further clarification through regulation

Wire Transfers and Transaction Monitoring

Legal obligations apply to all wire transfers, regardless of amount, but remittance sector has yet to be captured by these provisions in practice
Financial institutions need to monitor unusual transactions and transactions from high-risk countries, but foreign banks already comply with this regulation against home-country AML/CFT requirements or group standards

Conclusion

The new AML/CFT Law has enhanced the legal requirements for CDD and other preventative measures, but significant gaps remain in the regulatory framework. To address these gaps, Timor-Leste needs to strengthen its regulation, supervision, and enforcement of AML/CFT laws and regulations.

Recommendations

Implement explicit provisions for reduced or simplified customer due diligence (CDD) requirements
Require financial institutions to obtain approval from senior management before establishing new correspondent banking relationships or documenting AML/CFT responsibilities
Strengthen measures to address increased risks of money laundering and terrorist financing in non-face-to-face business relationships or transactions
Establish a mechanism for information sharing among competent authorities and financial institutions