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preventing and combating of money laundering and terrorism financing
Central Bank of Bahrain
Bahrain

The Problem

The Kingdom of Bahrain has been growing into a globally recognized financial center while there has been growing concerns around the world about the misuse of the international financial system by organized money laundering and terrorist financing schemes. Therefore, it was critical for the Kingdom to maintain and protect its position by developing an anti-money laundering and combating of the financing of terrorism framework that complies with the international standards in this field.
Leading the region: From the vision of Central Bank of Bahrain to promote financial stability in the Kingdom of Bahrain through the application of best standards and practices through the continuous development of legislation, regulatory and ways of their implementation in order to achieve sustainability and bringing the financial sector to the levels of global competitiveness, the Central Bank made a quantum leap in the Middle East and the North Africa in the field of prevention and combating of money laundering and terrorist financing, thereby bringing the Kingdom to the class-leading in this area.
In 2005, the Central Bank of Bahrain invited the International Monetary Fund for a comprehensive evaluation of legislation control to measure the extent of compliance with regulations, and international legislative. Following that and prior to the commence of the IMF evaluation team visit, the Central Bank initiated a self assessment project to evaluate the Kingdom’s regulations, and supervisory framework in the field of prevention and combating of money laundering and terrorism financing based on the methodology adopted and issued by the financial Action Task Force (FATF).
The outcomes of the final evaluation of the Kingdom of Bahrain by the International Monetary Fund were to a large extent in line with the results ofthe self-assessment project initiated by the Central Bank. The Kingdom of Bahrain adopted the final evaluation prepared by the International Monetary Fund and committed itself to its recommendations in the meeting of the Financial Action Task Force for Middle East and North Africa (MENAFATF), which was held in Abu Dhabi in 2006. The Kingdom committed to implement all the recommendations through a clear action plan and a specific timetable set by the policy committee on prevention and combating of money laundering and terrorist financing under the chairmanship of the Central Bank and membership of several key partners such as the Ministry of Interior, Ministry of Foreign Affairs, Ministry of Industry and Commerce,the Ministry of Humanrights and Social Development,the National Security Service, the Public Prosecution, Ministry of Labor, the General Administration of Customs and the Bahrain Stock Exchange.

Solution and Key Benefits

 What is the initiative about? (the solution)
The initiative was to enact Legislation in order to keep pace with global developments in regulations and legislation and practices of the specialized international organizations in the field of combating money laundering and terrorism financing and to develop a comprehensive plan of the Kingdom's commitment to international standards to protect the domestic economic and financial system through the national committee.

The initiative also included the application of best practices related to banking and financial sector to protect the domestic financial system through the Central Bank of Bahrain.
The impact of the initiative was measured through the annual progress reports submitted to the MENAFATF Plenary on a yearly basis citing all the corrective measures taken to tackle the comments raised in the Mutual Evaluation Report of IMF in 2005.
The Central Bank of Bahrain’s licensees benefited from the initiative as it ensured that such licensees are governed by a well trusted and globally recognized regulatory framework and supervised by a financial services supervisor (CBB) in line with international standards in the field.
The initiative also resulted in enacting and implementing laws and regulations covering non-financial businesses and charities and non-profit organizations.
The initiative contributed to enhancing the reputation and status of Bahrain as a global financial center, protecting the domestic financial system from the adverse impact of money laundering and the financing of terrorism. It has also resulted in greater opportunities of cooperation and coordination among the ministries and government agencies that are members of the National Committee for the application of best practices and ultimately resulted in attracting foreign investments.
Due to the initiative taken by the Central Bank of Bahrain in 2005, and the Action Plan which was adopted and implemented by the Central Bank and the ministries and government agencies that are members of the Policy Committee on the prevention and combating of money laundering and terrorist financing in 2006, Bahrain has become a vanguard of countries in the region in commitment to the objectives of the Charter of the FATF and was able to take sufficient action to prevent criminal abuse of the financial sector as means of money laundering and terrorism financing including the legal, operational and reputational risks involved.
This initiative has contributed in the exclusion of the Kingdom of Bahrain from blacklists when the Group of Twenty, in its quest to enhance the reputation of the global financial system and protect it from money laundering and the financing of terrorism in the wake of the global financial crisis in 2008, commissioned the FATF group to the include and announce the names of all States not bound by the prohibition and procedures against money laundering and terrorist financing, and demanded to issue a warning to the international financial community against the risk of dealing with those countries or financial institutions licensed by them. The "black list" was issued by the FATF and included the names of advanced European and Asian countries.

Actors and Stakeholders

 Who proposed the solution, who implemented it and who were the stakeholders?
The Solution was an initiative of the Government of Bahrain represented by the Central Bank of Bahrain under the guidelines of H.R.H. Prince Khalifa Bin Salman Al-Khalifa the Prime Minister of Bahrain and senior officials. The initiative was aiming at the implementation of international best practice in the area of anti-money laundering and combating the financing of terrorism. The Mutual Evaluation conducted by IMF at the request of the Central Bank of Bahrain has placed this initiative in the required perspective by identifying specific areas in the Kingdom’s AML/CFT framework that required rectification in order to be in line with the international standards in this field.

Since December 2005, the AML/CFT Policy Committee (PC) has been chaired by the Central Bank of Bahrain.The committee’s main role is to establish, monitor and improve the Kingdom’s AML/CFT framework. The Committee’s members include representatives from the Central Bank of Bahrain, Ministry of Interior, Ministry of Foreign Affairs, Ministry of Industry and Commerce, Ministry of Finance, Ministry of Human Rights and Social Development, Ministry of Labor, National Security Agency, Bahrain Stock Exchange, General Customs Directorate and Public Prosecution.

In striving to improve the AML/CFT framework in the Kingdom, the PC is conducting regular quarterly meetings to ensure consistency and efficient coordination in its strategy and priority setting between relevant ministries.

The Central Bank of Bahrain’s licensees, other non-financial business, and charities and non-profit organizations contributed to the implementation of the framework.

(a) Strategies

 Describe how and when the initiative was implemented by answering these questions
 a.      What were the strategies used to implement the initiative? In no more than 500 words, provide a summary of the main objectives and strategies of the initiative, how they were established and by whom.
Objectives: Main Objectives were to enhance the Kingdom’s position as a regional and international financial center, protect the domestic financial sector from the criminal misuse of money laundering and terrorism financing conspiracies, achieve coordination and cooperation among the various government agencies and ministries in implementing best practices in combating money laundering financing of terrorism and to attract foreign investments.

Strategies:The main strategies were to set a mechanismto keep pace withglobal developments inlegislation,regulations andpracticesof thespecialized international organizationsin the field of anti-money launderingand terrorist financing, to set a mechanism todevelop a comprehensive planof the Kingdom's commitment tointernational standardsrelating tothe prevention and combatingmoney launderingand terrorist financingthrough the National Committeein order to protectthe domestic financial sector, to set a mechanism forthe implementation of bestpracticesrelated tobanking and financial sectorthrough the Central Bank of Bahrain.

(b) Implementation

 b.      What were the key development and implementation steps and the chronology? No more than 500 words
Attending regular meetings of the FATF and MENAFATF to share and benefit from the transfer of knowledgeand practices, development and modernization of the relevant laws ( Law No. 4 of 2001 and amended in law No. 54 of 2006), development of regulations(the CBB Rulebook – revised regulations issued since 2005 onwards) requiring banks and financial institutions licensed by the Central Bank to implement the same and ensuring implementation through field inspection visits and External Auditor Reports, requiring all ministries and government agencies that are members in the Policy Committee (Policy Committee chaired by CBB since 2005) to develop their regulations and practices to keep pace with international requirements, publishing rulebooks, legislation and laws in the form of printed manuals r on the web pages of the ministries, conducting specialized seminars in coordination with other countries and international organizations, preparing and submitting an annual progress report to MENAFATF citing all the enhancements in the Kingdom’s AML/CFT regime (from 2006 onwards).

(c) Overcoming Obstacles

 c.      What were the main obstacles encountered? How were they overcome? No more than 500 words
The main obstacles were the delay in the issuance of laws and legislation, the lack of systems to support the implementation of the initiative, Banks and financial institutions did not give a paramount importance to the subject of AML-CFT at the beginning on the basis that the AML/CFT functions in banks would be acost center, rather than a revenue generating center, the high cost of appropriate training for some financial institutions (money exchange companies) as well as the high cost of adopting the required monitoring systems and appropriate organizational structures.
These obstacles were overcome with the support of the Central Bank’s senior management and follow up with their counterparts from senior officials, promoting a culture that supports the implementation of AML/CFT procedures and practices through meetings with banks and inspection reports, providing training for some financial institutions and coordinating with local training institutes by expanding the number of participants and reducing the cost for financial institutions.

(d) Use of Resources

 d.      What resources were used for the initiative and what were its key benefits? In no more than 500 words, specify what were the financial, technical and human resources’ costs associated with this initiative. Describe how resources were mobilized
A unique concept, a new approach:For the technical expertise and resources, the CBB invited representatives from the IMF to review the money laundering regulations in order to reform and strengthening the regulations and as part of a gap analysis the CBB undertook. The IMF team brought with them also a breadth of best practices and recommendations in that area.

The CBB formed the AML/CFT Policy Committee (PC) since December 2005 to establish, monitor and improve the Kingdom’s AML/CFT framework in light of the recommendations and deficiencies raised by the IMF. The Committee’s members included senior managers from the Central Bank of Bahrain, Ministry of Interior, Ministry of Foreign Affairs, Ministry of Industry and Commerce, Ministry of Finance, Ministry of Social Development, Ministry of Labor, National Security agency, Bahrain Stock Exchange, General Customs Directorate and Public Prosecution and was chaired by the CBB. In order to carry out its mandate, the Committee meets quarterly in order to fulfill its responsibilities and achieves its objectives.

In addition, the CBB managed to involve the financial industry in such initiative by requiring all licensees to appoint money laundering reporting officer (MLRO) and deputy money laundering reporting officer subject to obtaining CBB’s prior approval. The CBB applied its fit and proper requirements to approve such appointments. The CBB also designed, in collaboration with the Association of Certified Anti-Money Laundering Specialists (ACAMS), two educational programswhich set out the minimum qualification and level of knowledge that the CBB would accept in approving MLROs and Deputy MLROs. The program managed to spreads out a number of qualified professionals equipped with the required knowledge in the field of money laundering. All the graduates from such a program and all the tutors teaching the courses are an important part of the human resources involved in the success of the initiative other than the regulator and other government agencies. Such graduates have managed to build the culture in their respective organizations on the importance of being vigilant on money laundering procedures to the country as a whole. The CBB also requested all licensees to implement systems and procedures designed to enhance the money laundering procedures and assess them on regular basis as part of their risk assessment exercise.

Sustainability and Transferability

  Is the initiative sustainable and transferable?
The sustainability of the initiative is evidenced in avoidingthe exploitation offinancial institutions for money launderingand terrorist financing, none of the CBB’s licensees were designated as an institution involved in money laundering and financing of terrorism, enhancing the reputationand standing ofthe financial institutionby avoidinghuman errorsand early warning by requiring the institutions to report suspicious transactions to the Central Bank of Bahrain and the FIU.

Sustainability of the initiative is being achieved through continuous access to the latestlegislation andpracticesthrough participationinregular meetingsand seminarsheld by theFATFand MENAFATF and participating inthe meetingsheldon the sidelines ofthose seminarsto exchange experiences, promoting self-reliancethrough thenational competenciesandcontinuous investment inorder todevelopcreativityand excellence, constant reviewofperformance indicatorsthroughfieldinspectionsandfollow-up reports, the transfer ofglobal relevant expertisefrominternational financial institutionslicensed bythe Central Bank toother banksand financial institutionsthroughlocalmeetings andmeetings with theMLROs, ensuringthe effectiveness ofelectronic systemsused by banksthroughfieldinspection visits and development and modernization ofelectronic systemsconstantly, contributing to thepromotion ofpublic awareness of the relevant laws and regulations, promoting career development in the field of AML/CFT, expandingthe membership ofthe Policy Committee.

The initiative has been disseminated through the transfer of knowledge and best practice of the Central Bank to the ministries and government agencies in the Kingdom.

Having such a leading experience in the field of AML/CFT, places the Kingdom of Bahrain at the far front among other countries in the region in terms of regulatory framework and systems. Other countries could benefit from the same in implementing their own frameworks.

Lessons Learned

 What are the impact of your initiative and the lessons learned?
The Central Bank of Bahrain as a regulator gained access to global legislation and practices in the field of AML/CFT which helped in assessing the Kingdom’s own regulations and legislation and practices at the national level and at the level of the of the Central Bank.

The initiative contributed to enhancing the knowledge of the CBB staff as well as those involved from the concerned ministries and government agencies in addition to creating a culture in financial institutions that appreciates the AML/CFT concept, standards and measures. The initiative has also impacted the bank customers’ awareness and sense of responsibility with respect to money laundering and terrorist financing situations.

The implementation of AML/CFT automated monitoring systems helped banks to improve efficiency and capture, investigate and report suspicious customer transactions. Such systems assisted banks to achieve returns on their investments in AML/CFT systems and structures by protecting their reputation and ensuring compliance with the regulatory requirements.
After implementing the this initiative there was an increase in the number of suspicious transactions reported to the Central Bank as well as the number of cases investigated and prosecuted.

Lessons:
The formation of working teams of specialists to study the drafts of laws and legislation contributed to speeding up the issuance of laws and legislation.
The gradual steps in the transfer of the culture of sharing best practices pursued by the Central Bank to require banks to develop policies and procedures and the provision of programs and electronic meetings, contributed greatly to persuade the banks to ensure compliance with the CBB’s AML/CFT requirements.

Contact Information

Institution Name:   Central Bank of Bahrain
Institution Type:   Government Agency  
Contact Person:   Hussain Shaheen
Title:   Superintendent-Training Career Development  
Telephone/ Fax:   +973-17-547327
Institution's / Project's Website:   www.cbb.gov.bh
E-mail:   ssafar@ega.gov.bh  
Address:   P.O. Box 27
Postal Code:  
City:   Manama
State/Province:  
Country:   Bahrain

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