The Islamic Financial Services Board (IFSB)
is pleased to announce the issuance of a joint paper titled ‘Joint Islamic
Financial Services Board (IFSB) - Arab Monetary Fund (AMF) Working Paper on
Money Laundering and Financing of Terrorism (ML/FT) Risks in Islamic Banking’
(WP-12).
The IFSB and AMF collaboration aimed to
examine ML/FT methods, trends and typologies as specifically related to Islamic
banking, and attempted to address whether there is any evidence that ML/FT
risks in Islamic banking are indeed different from those that arise in
conventional banking. From that perspective, this Working Paper (WP-12)
explored the diverse risks of ML/FT activities in the banking system to
identify if they vary between conventional and Islamic banking.
On the issuance of this paper, Secretary
General of the IFSB, Dr. Bello Lawal Danbatta stated: “This paper is a timely
response of the IFSB to the comments that the Islamic financial services
industry (IFSI) may be highly prone to the issues of ML/TF risks which might
emanate from the intrinsic characteristics of instruments and arrangements used
in Islamic banking, or from the nature of the contractual relationship between
Islamic banks and their customers.” He further noted, “The paper would enhance
the understanding and awareness among the stakeholders of the IFSI regarding
the ML/TF risks in Islamic banking and would constitute the basis for further
research works.”
The paper discusses survey responses
received from banking regulatory and supervisory authorities (RSAs) on ML/FT.
Overall, the paper does not find any significant difference in the ML/FT risks
between conventional and Islamic banking. Moreover, the concerns often raised
regarding the potential for Islamic social finance platforms such as zakah,
waqf, sadaqah, etc., to be used to mobilise, store and disburse funds for ML/FT
is unfounded based on the research findings. In addition, most respondent RSAs
view that there is no merit in introducing specific regulations or preventive
measures to address the ML/FT risks in Islamic banking. Since risk levels are
largely similar in both conventional and Islamic banking, Islamic banks should
adhere to their own country regulations and the Financial Action Task Force
standards to combat ML/FT.