POSITION PAPER

Committee : ECONFIN

Topic : International Efforts to Combat Money Landry

Country : Democratic Republic of Timor-Leste

Delegate : Maria Novia Soares

General Information on Timor-Leste

The Democratic Republic of Timor-Leste (“Timor-Leste”) is located in South East Asia and
occupies an area of 15,410 km² comprising the eastern half of the island of Timor, and includes
Atauro Island, Jaco Island and Oecusse (an enclave surrounded by West Timor, Indonesia on the
north-western side of Timor island). The north of Timor is bounded by the Ombai Strait, Wetar Strait
and the greater Banda Sea. South of Timor is the Timor Sea which separates Timor from Australia,
while to the west lies the Indonesian province of East Nusa Tenggara.

Timor-Leste’s population is approximately 1.1 million, approximately 300,000 of whom live

in the capital city of Dili. The official languages are Portuguese and Tetum, while English and Bahasa
Indonesia are working languages. The predominant religion is Roman Catholicism (95% of the
population)

Timor-Leste has been relatively stable over the last few years but remains a state in transition.
Timor-Leste is considered a low capacity country which confronts long-term development challenges
such as a severe lack of resources including a skilled workforce and an overall weakness in legal
enforcement and public governance. Other challenges include poor infrastructure in the
transportation, telecommunication and electricity sectors as well as a private sector hampered in its
early development by a lack of a skilled workforce and regulatory capacity.

ECONOMY

Timor-Leste is not a regional or offshore financial center, and has no free trade zones. The
economy is cash-based, and the Ministry of Finance estimates only 1.3 percent of Timorese
regularly use banking facilities. The national economy heavily depends on government
spending financed by petroleum and natural gas revenues, supplemented by assistance from
international donors. The private sector is small, concentrated in the service and retail
sectors.

Timor-Leste is a member of the Asia/Pacific Group on Money Laundering (APG). This

evaluation was conducted by the APG and was adopted as a 1st mutual evaluation by its
Plenary on 19 July 2012.

The Government of Timor-Leste lacks critical AML/CFT controls, and its low technical,
financial, and human capacity makes it difficult to enforce adequately the laws that are in
place. In 2013, Parliament remedied the deficiencies in its 2011 AML/CFT law with the
passage of a package of amendments. The Central Bank is charged with implementing the
necessary measures to make the amended law more effective.

The law also mandates the fullest judicial cooperation between relevant Timorese authorities
and competent foreign authorities. The details of that cooperation are not specified, however.
Many of the details with respect to implementation of the law are contained in a Decree Law
and instructions that have not yet been implemented.

On May 27, 2014, Timor-Leste became a party to the UN International Convention for the
Suppression of the Financing of Terrorism. On June 3, 2014, Timor-Leste became a party to
the 1988 UN Drug Convention.

Timor-Leste should fully implement its 2013 amendments to the AML/CFT law. Customer
due diligence and reporting procedures have been implemented only in banks and
microfinance institutions. The government should take steps to implement these programs in
all entities covered under the AML/CFT law.

Transparency and good governance

The 2010 Corruption Perception Index (CPI) ranked Timor-Leste at 127 out of 178 surveyed
countries, with a score of 2.52. Timor-Leste’s ranking improved from the 2008 ranking by 14 places
but still indicates that corruption is a serious problem.
Statistics provided by Timor-Leste authorities on corruption show a growth in corruption
cases since 2005. Public perceptions of corruption are growing quickly and indicate that corruption in
Timor-Leste is widespread and consists of both petty and high level corruption.

Anti-Corruption Measures
88. As stated above the 2010 CPI ranked Timor-Leste at 127 out of 178 surveyed countries, with
a score of 2.5, indicating that corruption is a serious problem.
89. Timor-Leste ratified the United Nations Convention against Corruption in November 2008
through National Parliament’s Resolution no. 25/2008.
90. In 2009, the National Parliament also passed Law 08/2009 to establish the Anti-Corruption
Commission (ACC). The ACC is an independent, specialised criminal police body. The mission of the
ACC is to undertake preventive and criminal investigative action against corruption in any of its
forms, embezzlement, abuse of power, trafficking of influences and financial participation in public
affairs. The ACC is working closely with the Office of the Prosecutor General and the police to
handle investigations to conduct investigations and prepare cases for prosecution. The ACC is
continuing to develop its internal capacity and may consider the development of a national
anticorruption strategy.
National Strategy on the Implementation of AML/CFT measures – Timor-Leste plans to
develop a comprehensive National Strategy on Combating Money Laundering and the
Countering of the Financing of Terrorism to ensure that stakeholders are aware of the
national priorities including higher risk areas that need to be addressed.
This is the first Mutual Evaluation for Timor-Leste since it became a member of the
Asia/Pacific Group on Money Laundering in 2008.

Money laundering (ML) and most of the underlying or predicate criminal offences relevant to
the ML offence are contained in the Penal Code, approved by Decree-Law n° 19/2009 of 8 April
2009. The recently enacted AML/CFT Law, Law n° 17/2011, defines ML in Article 37 by reference
to Article 313 of the Penal Code. While the ML offence provision is laid out under Article 313 of the
Penal Code, Article 42 of the AML/CFT Law provides for the criminal liability of legal persons. The
illicit character of the conduct perpetrated through the legal person will have to be ascertained under
Article 313 of the Penal Code although the corresponding penalties are only stated in Article 42 of the
AML/CFT Law. Not all of the designated categories of predicate offences for ML are criminalised in
either the Penal Code or other special criminal legislation enacted by Timor-Leste.

This model law on money laundering and the financing of terrorism is the outcome of a joint effort of
the United Nations Office on Drugs and Crime (UNODC) and the International Monetary Fund (IMF).
It contains a comprehensive set of legal measures that a domestic law should include in order to
prevent, detect, and sanction effectively, money laundering and the financing of terrorism and to
enable international cooperation against these crimes. In money laundering, the proceeds of crime
are run through the financial system to disguise their illegal origins and make them appear to be
legitimate funds. Most often associated with organized crime, money laundering can be linked to any
crime that generates significant proceeds, such as extortion, drug trafficking, arms smuggling, and
whitecollar crime. Although money laundering often involves a complex series of transactions, it
generally includes three basic steps.

Although money laundering is impossible to measure with precision, it is estimated that US$300 billion
to US$500 billion in proceeds from serious crime (not tax evasion) is laundered each year. Measures
in major financial markets to detect and prosecute laundering are driving it toward less developed
markets linked to the global financial system. If left unchecked, money laundering could criminalize
the financial system and undermine development efforts in emerging markets. This Note surveys
efforts by international bodies to combat money laundering. It looks in particular at the Financial
Action Task Force based at the OECD, which has made the most continuous effort.

Money laundering Money laundering can be described as the process by which a person conceals or
disguises the identity or the origin of illegally obtained proceeds so that they appear to have originated
from legitimate sources. Criminals exploit economic and financial globalization and the advances
made in technology and communications with a view to concealing the origin of funds that they have
gained through illegal activities. They make extensive use of a broad array of techniques, such as the
rapid transfer of money from one country to another or the misuse of corporate vehicles to disguise
the true owner of the funds. The activities of powerful criminal organizations can have serious social
consequences. Laundered money provides drug traffickers, organized criminal groups, arms dealers
and other criminals with the wherewithal for operating and developing their enterprises. Without
effective safeguards or preventive measures, money laundering can strike at the integrity of a
country's financial institutions. The removal of billions of dollars from legitimate economic activities
each year constitutes a real threat to the financial health of countries and affects the stability of the
global marketplace. Money laundering undermines international efforts to establish free and
competitive markets and hampers the development of national economies. It distorts the operation
of markets transactions, may increase the demand for cash, render interest and exchange rates
unstable, give rise to unfair competition and considerably exacerbate inflation in the countries where
the criminals conduct their business dealings. Small countries are particularly vulnerable to money
laundering. The gains from illegal activities can provide criminal organizations with potentially huge
economic power which in turn can give them leverage over small economies. In any country, the lack
of suitable control mechanisms, or the inability to apply them, provides criminals with the opportunity
to pursue their illegal activities. Laundering the proceeds of illicit activities in countries that do not
have an effective antimoney laundering/combating the financing of terrorism (AML/CFT) system in
place has one purpose only - to make use of structural weaknesses or to exploit the gaps in the 1
institutional and law-enforcement machinery in order to benefit from the proceeds of crime with
impunity. Money laundering is an essential aspect of any profit-generating criminal activity and is an
inevitable corollary of organized crime. The operations of criminal organizations, directed as they are
towards the accumulation of illegal profits, create a need for laundering in direct proportion to the
extent that such activities are developed and concentrated in the hands of a small group. Colossal
amounts of cash generated by certain types of criminal activity, such as drug trafficking, leave trails,
which are more difficult to hide than the traces left by the crimes themselves.

How are Efforts to Combat Money Laundering and

Financing of Terrorism linked?
Money laundering is the process of concealing the illicit origin of proceeds of crimes.
Terrorist financing is the collection or the provision of funds for terrorist purposes. In
the case of money laundering, the funds are always of illicit origin, whereas in the case
of terrorist financing, funds can stem from both legal and illicit sources. The primary
goal of individuals or entities involved in the financing of terrorism is therefore not
necessarily to conceal the sources of the money but to conceal both the funding
activity and the nature of the funded activity.
Similar methods are used for both money laundering and the financing of terrorism. In
both cases, the actor makes an illegitimate use of the financial sector. The techniques
used to launder money and to finance terrorist activities/terrorism are very similar and
in many instances identical. An effective anti-money laundering/counter financing of
terrorism framework must therefore address both risk issues: it must prevent, detect
and punish illegal funds entering the financial system and the funding of terrorist
individuals, organizations and/or activities. Also, AML and CFT strategies converge;
they aim at attacking the criminal or terrorist organization through its financial
activities, and use the financial trail to identify the various components of the criminal
or terrorist network. This implies to put in place mechanisms to read all financial
transactions, and to detect suspicious financial transfers.
How are Corruption and Money Laundering linked?
Both corruption and money laundering are of great concern for the IMF and they are
now an integral part of its work because of the numerous disruptive consequences that
each has on national and regional economies.
Anti-corruption and anti-money laundering work are linked in numerous ways, and
especially in recommendations that promote, in general, transparency, integrity and
accountability. Recommendation 6 of the FATF 40+9 Recommendations and Paragraph
7 of the Methodology for Assessing Compliance with the FATF 40+9 Recommendations,
are particularly relevant to anti-corruption efforts. The essential connections are:
 Money laundering (ML) schemes make it possible to conceal the unlawful origin of
assets. Corruption is a source of ML as it generates large amounts of proceeds to be
laundered. Corruption may also enable the commission of a ML offense and hinder
its detection, since it can obstruct the effective implementation of a country's
judicial, law enforcement and legislative frameworks.
 When countries establish corruption as a predicate offense to a money laundering
charge, money laundering arising as a corrupt activity can be more effectively
addressed. When authorities are empowered to investigate and prosocute
corruption-related money laundering they can trace, seize and confiscate property
that is the proceeds of corruption and engage in related international cooperation.
 When corruption is a predicate offense for money laundering, AML preventive
measures can also be more effectively leveraged to combat corruption.
The Financial Action Task Force (FATF) Secretariat is currently coordinating a project to
draft a paper outlining the links between corruption and money laundering that may
facilitate the implementation of international AML/CFT standards.