Assistant Secretary Daniel L. Glaser's Keynote Address for t

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Assistant Secretary Daniel L. Glaser's Keynote Address for the US-India Private Financial Sector Dialogue: Opportunities and Challenges for Growth
Mumbai, India
Introductory Comments
I would like to thank the Confederation of Indian Industry (CII) and U.S.-India Business Council (USIBC) for co-sponsoring the U.S.-India Private Financial Sector Dialogue. Their generous support of this event is a prime example of their tireless efforts to promote cooperation, best practices, and two-way investment in the U.S. and Indian financial systems and capital markets.
It is an honor to address this distinguished group, which has brought together senior level bankers, equity fund managers, and other financial service providers from the United States and India. Our countries are bound by shared interests and values. As the world’s two largest democracies, we have both embraced free market economies to drive our economic and financial growth and to provide our citizens with the social and economic opportunities that are essential for social justice and individual well being.
Both India and the U.S. understand the importance of a strong international financial system and must look at new ways to expand access to the formal, or regulated, financial system through new payment technologies and financial service providers. But we are also mindful of the potential risks of money laundering and the financing of terrorism that comes with globalization, growth, and evolving technologies. Put at the disposal of groups espousing violent ideologies, these illicit finance threats can lead to deadly and tragic outcomes. It is the joint recognition of this fact that makes the U.S. and India natural allies in the fight against illicit finance.
Tragically, the July 13th terrorist bombings in this city again make crystal clear that terrorism—and terrorist financing—remain an immediate threat to India, the United States, and the entire world. Our cooperation on combating terrorism—including terrorist financing networks—is a critical part of our relationship. As such, the U.S.-India financial sector partnership has never been more important.
Your participation at this event enhances the strong partnerships being formed between the private financial sectors of India and the United States and complements our government-to-government engagement under the India-U.S. Economic and Financial Partnership (EFP), which was launched in April 2010. That’s why it’s important to participate in this Private Sector Dialogue and support the direct exchange of ideas and sharing of best practices between U.S. and Indian financial institutions. Exchanges like this help increase private sector cooperation and our overall effectiveness in combating terrorist financing, money laundering, and other economic crimes. Like this Private Sector Dialogue, our bilateral government-to-government efforts to promote the prosperity, stability, and integrity of our respective domestic financial sectors reflect the importance both governments place on India’s expanding role in enhancing the security and growth of the global financial system.
India plays an increasingly important role in combating terrorism and terrorist financing on the world stage. Notably, in June 2010, India became a full member of the Financial Action Task Force, or FATF, the premier international body dedicated to anti-money laundering and counter terrorist financing or AML/CFT. India has also demonstrated leadership regionally in the Asia Pacific Group on Combating Money Laundering or the APG—the region’s FATF-Style Regional Body. In fact, just last week, India hosted the Plenary of the APG in Kochi to discuss key AML/CFT issues in the region. As India continues to take a greater leadership role on these issues, it is important that our two countries engage in regular bilateral consultations.
Financial Inclusion and AML/CFT Requirements
I would like to focus my remarks today on the importance of financial inclusion and AML/CFT cooperation. As noted above, the private financial sector is critically important for our efforts to protect and enhance the national security of our two countries. You are on the front lines of ensuring the integrity of the international financial system and protecting it from abuse by those who would do us harm. It is for this reason that the international community has set standards through the FATF that require countries to harness the capacity of the private financial sector as a core component of their AML/CFT regimes.
As financial institutions, you also have the fundamental mission of ensuring the strength and stability of your own businesses, which drives economic and financial growth. Financial institutions all over the world are exploring new financial services and ways to deliver them to a wider market—including those people who are not currently using licensed and regulated financial service providers. Promoting financial inclusion by bringing as many people as possible into the private financial sector supports economic growth and opportunity by creating access to credit, savings, and investment opportunities.
Safeguards against money laundering and the financing of terrorism are often mistakenly thought to be at odds with financial inclusion. In fact, the opposite is true. AML/CFT safeguards, financial inclusion, and economic growth go hand-in-hand.
The key to ensuring that AML/CFT safeguards are compatible with financial inclusion and economic growth is the risk-based approach to AML/CFT promoted by the FATF. Properly applied, risk-based safeguards enhance the transparency of the financial system, disrupting the ability of criminals and other bad actors to use it to move funds to support their illicit activities. And if, despite preventive measures, they do access the financial system, financial transparency helps law enforcement follow the money to track down the illicit actors and their funds. If all countries were to adopt and implement international AML/CFT standards, the international financial system would offer no safe havens for illicit actors or their assets.
These safeguards are undermined when large groups of people do not participate in the formal financial system. This is why financial inclusion is so important to countering the financing of terrorism. Financial inclusion brings those who normally use cash or the black market into the formal financial system at an affordable cost.
Countries that impose rigid rules and ignore the flexibility inherent in a risk-based approach to AML/CFT make a mistake. By making it difficult to use licensed and regulated financial services, countries inadvertently promote the use of cash—which is anonymous—and create demand for black market services. This, in turn, allows unlicensed and unregulated service providers to facilitate illicit currency exchange, tax evasion, as well as money laundering and the financing of terrorism. Minimizing the demand for black market services by encouraging broad participation in the licensed and regulated financial system enhances transparency and reduces the potential for illicit transactions.
Countries all over the world are allowing the use of new payment technologies and business models to bring financial services to those currently outside the formal financial system. In many cases, existing bank branches and money transmitter agents are simply not convenient, and establishing new ones is not cost effective. But by using the Internet or a cell phone to access financial services, a much larger percentage of the population can have access to safe, efficient, and convenient financial services. At the same time, the increased transparency helps investigative authorities obtain information that is essential for identifying terrorist cells and criminal organizations.
India is pioneering this approach with what are known as “small accounts.” This type of account has caps on overall value, frequency of use, and size of transactions. These safeguards limit the potential for misuse, but provide adequate functionality, particularly for individuals who rely on remittances from family members living and working away from home. Financial institutions still need to monitor low-risk accounts, but less frequently and less intensely than with higher-risk accounts. This allows a more efficient allocation of resources, since financial institutions focus their compliance resources on higher risk threats. Although the concept of a risk-based approach may seem simple, it can be difficult to implement. It requires financial institutions to recognize risks and react appropriately, both when opening accounts and when monitoring account activity.
New technology is helping. India provides a prime example with its Unique Identity project (UID), which will seek to allow those without acceptable formal documentation to obtain access to the financial system while cutting down on economic crimes, such as identity theft and social welfare fraud.
But even as we recognize these advances in anti-money laundering implementation, we need to also recognize that money laundering and terrorist financing methods are always evolving. Shifting patterns of operational cooperation, communication, and material support among terrorist cells and criminal organizations require ongoing information sharing and coordination among civil and criminal government authorities working with the private sector.
And this information sharing needs to occur across borders as well. No matter how effective domestic policies and procedures may be, no country acting alone can effectively combat terrorism and illicit finance. As we are all constantly reminded, we live in a global economy in which opportunities for economic growth are inevitably tied to greater integration with regional neighbors and far-flung trading partners. This is certainly the case with the United States and India. That is why I am also meeting with Indian government officials in Mumbai and New Delhi this week to promote increased U.S.-India cooperation on combating terrorist financing, including through increased information sharing with respect to Laskar-e-Tayiba (LT), al Qa’ida, the Taliban and other South Asia groups that endanger both India and the United States.
Opportunities generated by legitimate global integration inevitably provide opportunities for illicit actors. Licit and illicit economic activities thrive on global integration. We rely on our international partners to help facilitate our economic growth, and we have to rely on one another to protect our safety. I look forward to continuing and strengthening the productive collaboration between India and the United States in the fight against terrorist financing and financial crime.