Financial Crime World

Timor-Leste’s Progress in Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT)

Strengths of Timor-Leste’s AML/CFT Measures

While there is still much work to be done, Timor-Leste has made significant progress in implementing AML/CFT measures. Some key strengths include:

Key Developments in AML/CFT Law and Regulation

  • Enactment of the new AML/CFT Law: This provides a framework for financial institutions and non-financial businesses to implement AML/CFT measures.
  • Customer Due Diligence (CDD): Financial institutions are required to obtain CDD information, including identifying customers’ beneficial owners.
  • Suspicious Transaction Reporting (STRs): Financial institutions must report suspicious transactions to the Financial Intelligence Unit (FIU).
  • Examinations and Sanctions: The BCTL has conducted six examinations on AML/CFT compliance and imposed two sanctions for violating AML/CFT rules.

Weaknesses in Timor-Leste’s AML/CFT Measures

Despite progress, there are still several areas that require improvement:

Areas for Improvement

  • Correspondent Relationships: There is no requirement for banks to obtain approval from senior management before establishing new correspondent relationships or to document the respective AML/CFT responsibilities of each institution.
  • CDD Outsourcing: There is no enforceable instruction in Timor-Leste that permits banks or other financial institutions to rely upon third-party services to perform CDD and this does not occur in practice.
  • Information Sharing: The confidentiality of customer information is protected, but there is currently no mechanism for information sharing among competent authorities and financial institutions.
  • Record-Keeping: Record-keeping requirements are set out in the AML/CFT Law and Public Instruction 03/2003, but effective implementation across all sectors cannot be established yet as the requirements are new.
  • Remittance Sector: The remittance sector has yet to be captured by the provisions in practice as this sector remains unregulated until the Public Instruction for Money Transfer Operators is approved.
  • Business Relationships and Transactions: Financial institutions have not been required to pay specific attention to business relationships and transactions with counterparts from or in countries not sufficiently applying the FATF Recommendations.
  • STR Reporting Rates: STR reporting rates are very low, although it is hoped that the number will continue to gradually increase.
  • Human and Technical Resources: The BCTL needs adequate human and technical resources to ensure the effective implementation of the new regime.

Recommendations for Improvement

To address these weaknesses and build on strengths, the following recommendations are made:

Key Recommendations

  1. Implement regulations or orders to clarify satisfactory requirements for financial institutions to establish internal control systems for AML/CFT.
  2. Provide adequate human and technical resources to the BCTL to ensure effective implementation of the new regime.
  3. Finalize a Public Instruction on MTOs to further address regulatory gaps in the remittance sector.
  4. Enhance information sharing among competent authorities and financial institutions.
  5. Improve record-keeping requirements and increase STR reporting rates.

By implementing these recommendations, Timor-Leste can continue to strengthen its AML/CFT measures and ensure a safer financial system for all.