Bank and Fund take on terror

17 January 2002 | Briefing

The World Bank and International Monetary Fund appear to have carved out roles for themselves in the ‘international war against terrorism’. A common theme which emerged from the communiqués of the rescheduled Bank and Fund annual meetings in Ottawa last weekend was the resolve to combat terrorism through their institutional framework.

In particular, the IMF has initiated an action plan, endorsed by the International Monetary and Financial Committee (IMFC) of the IMF, which includes using voluntary questionnaires issued under the Fund’s Article IV country surveillance to identify gaps in governments’ anti-money laundering regimes to cut off terrorist financing. This would also involve providing technical assistance and aid to countries lacking the capacity to implement set international standards on illegal financial flows.

The imperative to address the problem of terrorism comes from the Bush administration’s push for international financial institutions to take more concerted steps to shut down terrorist financing networks in the wake of the 11 September attacks in the United States. The Financial Times (16/11) quoted Paul O’Neill, US Treasury Secretary, saying that IFIs should work with developing countries to improve financial record-keeping to enable investigators to track suspicious transactions. The Bank and Fund, he said, should assist “in creating the basis of sound financial organization and mechanisms so that intelligence and law enforcement activity has a real chance of succeeding”.

The US has also been pressing the IMF to complement the work of the Financial Action Task Force (FATF) in closing down terror funds. The FATF – a body established by the OECD to crack down on money-laundering – recently expanded its mandate beyond efforts to combat money laundering and pursue measures to prevent the abuse of the financial system by terrorists.

Taking on the challenge, the IMFC devoted a substantial paragraph in their 17 November communiqué calling on IMF members to freeze assets of terrorists and their associates within the countries’ jurisdiction, shut off terrorist access to the international financial system, and make public the names of terrorists whose funds have been frozen. The Committee approved of the IMF expanding its anti-money laundering efforts to cover legal and institutional frameworks and accelerating its offshore financial center assessments programme and undertaking onshore assessments through its financial sector assessment programmes (FSAP).

Finance ministers attending the meeting – most of them from industrialized nations with a handful from middle-income countries such as China and India – also set 1 February 2002 as the deadline for governments to execute measures to combat terrorist financing. They called on all member countries to ratify and implement the United Nations anti-terrorism instruments, in particular UN Security Council Resolution 1373 which prescribes wide-ranging anti-terrorism measures, and to establish financial intelligence units to monitor and analyse suspected terrorist funds.

Investigations into the 11 September attacks have reportedly revealed gaps in the supervision of global banking flows, allowing terrorists to exploit conventional and unconventional means of financial transfers.

Question of mandate

Questions have already arisen as to whether such action is indeed within the remit of the Bank and Fund. Monitoring international financial flows is a mammoth task which staff and some members say the IMF (and World Bank) is ill-equipped to deal with, one that is best left to enforcement agencies, or dedicated policy-making bodies, such as the FATF.

There is little the Fund nor the Bank can do to monitor financial flows among and within countries Both institutions do not have the powers to regulate national banks nor insist on structural reforms to national financial systems. The Fund can only monitor the activities of its member countries and among them, it has leverage only over those who borrow from it. Leverage over countries in most cases would involve imposing conditionalities on the Bank and Fund’s lending.

However, the IMFC had emphasized that work to improve standards on regulatory flows would remain voluntary and insists there is no indication of making curbs on terrorism financing a conditionality of its lending. The Bank, on the other hand, has taken the matter on board as a ‘governance’ issue. In their communiqué, the Bank’s Development Committee explicitly highlights the need for the Bank and Fund to pay more heed to “governance-related issues” to “identify and address abuses such as money laundering and terrorist financing” (Paragraph 4, Development Committee communiqué).

The Bank will provide training and technical assistance to countries facing institutional difficulties in taking action against terrorism financing. The Development Committee expressly mentions “the need to allocate increased resources to address capacity building concerns in many countries to help them meet internationally agreed commitments and standards”.

In comparison to the section on terrorism financing, the IMFC communiqué barely discusses the IMF‘s role in surveillance and crisis prevention , mentioning only in passing the Fund’s continued prioritization of setting and implementing standards and codes to ensure macroeconomic and financial stability (Paragraph 10, IMFC Communiqué). This is in spite of the Committee’s assertion that the IMF “has a central role” in ensuring global macroeconomic and financial stability. Anti-terrorism monitoring activities would require better surveillance of the private sector but scant attention is paid to private sector regulation in the IMFC communiqué or that of the Development Committee.

Coming hot on the heels of the World Trade Organisation (WTO) ministerial summit in Doha, Qatar held from 9-13 November under the fog of war, some Bank and Fund watchers were similarly concerned that the rescheduled annual meetings would be another opportunity for the US administration to push through favourable reforms under the aegis of multilateral cooperation. Judging from the decisions reached, the outcome of the Ottawa meetings appear to reinforce this criticism that the US is using international trade and financial forums to advance their geopolitical agenda post-11 September.

Communiqué of the International Monetary and Financial Committee of the Board of Governors of the International Monetary Fund 17 November 2001

World Bank Development Committee Communiqué 18 November 2001

United Nations Security Council Resolution 1373 28 September 2001

Background materials to the IMF‘s involvement in combating money-laundering and terrorist financing

Financial Times Special Report on the World Bank and IMF annual meetings

Related Bretton Woods Project articles:

After 11 September: Towards a new multilateralism?

Monitoring international institutions in a new political context

Keeping the pressure on; scrutinising multilateral organisations after 11 September by Alex Wilks in The Observer Online 4 November 2001