In today’s interconnected world, the issues of money laundering and terrorism financing have become significant concerns for nations worldwide. To address these pressing challenges, the Financial Action Task Force (FATF) was established. Our blog of today explores the story behind the creation of the FATF, its purpose, and provides an overview of its 40 regulations that have helped shape global efforts against financial crimes.
The Financial Action Task Force was created in 1989 during the G7 Summit held in Paris. Its formation was a direct response to the growing need for a coordinated international effort to combat money laundering, which had become increasingly prevalent and threatened the integrity of global financial systems. The G7 recognized the importance of collective action and established the FATF as an intergovernmental body to set standards and promote effective measures to combat money laundering and terrorism financing.
The primary purpose of the FATF is to develop and promote policies, standards, and recommendations to combat money laundering, terrorist financing, and other threats to the integrity of the international financial system. The organization sets forth guidelines and best practices for its member countries to adopt and implement, fostering cooperation and consistency in combating financial crimes. The FATF also conducts evaluations of its member countries’ compliance vs its recommendations, providing assessments and assistance to enhance their anti-money laundering and counter-terrorism financing frameworks.
The FATF has developed a comprehensive framework consisting of 40 recommendations that serve as the global standard for combating money laundering and terrorist financing. These recommendations cover various aspects related to anti-money laundering and counter-terrorism financing efforts. Some key areas covered by the FATF regulations include:
- Legal Systems and their implementation.
- Criminalization of money laundering and terrorist financing.
- International cooperation and information exchange.
- Customer due diligence and enhanced due diligence.
- Record-keeping and suspicious transaction reporting.
- Regulation and supervision of financial institutions.
- Non-profit organizations and their vulnerability to abuse.
- International cooperation in freezing and confiscating assets.
- Transparency and beneficial ownership of legal entities.
- Regulation and supervision of virtual assets and virtual asset service providers.
Each of these 40 regulations provides specific guidance and requirements to help countries establish robust anti-money laundering and counter-terrorism financing frameworks. By implementing these recommendations, countries aim to enhance their ability to detect, prevent, and deter financial crimes effectively and contribute towards a safer and more secure global economy.
- Legal Systems: Countries should establish legal frameworks to criminalize money laundering and terrorist financing offenses. These laws should provide for effective investigation, prosecution, and sanctions.
- Integration of National Strategies: Countries should develop national strategies and policies to combat money laundering and terrorist financing, which should be regularly reviewed and updated.
- Terrorist Financing Offense: Countries should ensure that their laws criminalize the financing of terrorism, including the provision or collection of funds for such purposes.
- Freezing and Confiscation of Terrorist Assets: Countries should have mechanisms in place to freeze and confiscate assets linked to terrorism, consistent with international obligations
- International Cooperation: Countries should cooperate with each other by sharing information and providing assistance in investigations, prosecutions, and confiscation proceedings related to money laundering and terrorist financing.
- Financial Intelligence Units (FIUs): Countries should establish and maintain FIUs as central national agencies responsible for receiving, analyzing, and disseminating financial intelligence related to money laundering and terrorist financing.
- Targeted Financial Sanctions Related to Terrorism and Proliferation: Countries should implement targeted financial sanctions to prevent funds from being made available to terrorists or those involved in the proliferation of weapons of mass destruction.
- Nonprofit Organizations: Countries should ensure that nonprofit organizations are not misused for money laundering or terrorist financing and should have measures in place to mitigate the risks associated with these organizations.
- Cash Couriers: Countries should have measures to detect and deter the cross-border transportation of currency or bearer negotiable instruments, which could be used for money laundering or terrorist financing.
- Transparency and Beneficial Ownership of Legal Persons: Countries should ensure that there is accurate and timely information available on the beneficial ownership of legal entities, which can help prevent the misuse of corporate structures for illicit purposes.
- Transparency and Beneficial Ownership of Legal Arrangements: Countries should ensure that there is accurate and timely information available on the beneficial ownership of legal arrangements, such as trusts, to prevent their misuse for illicit purposes.
- Politically Exposed Persons (PEPs): Countries should have measures in place to prevent the misuse of financial systems by politically exposed persons, who are individuals entrusted with prominent public functions.
- Correspondent Banking: Financial institutions should have effective risk-based procedures in place for correspondent banking relationships to prevent money laundering and terrorist financing.
- Money Value Transfer Services (MVTS): Countries should regulate and supervise money value transfer services to prevent their misuse for money laundering and terrorist financing.
- New Technologies: Countries should regulate and supervise virtual assets and virtual asset service providers to prevent their misuse for money laundering and terrorist financing.
- Wire Transfers: Financial institutions should have measures to identify and verify the originator and beneficiary of wire transfers, enhancing transparency and preventing the misuse of these transfers for illicit purposes.
- Reliance on Third Parties: Countries and financial institutions should assess and mitigate the risks associated with relying on third parties for customer due diligence.
- Internal Controls and Foreign Branches and Subsidiaries: Financial institutions should establish internal policies, procedures, and controls to prevent money laundering and terrorist financing in their foreign branches and subsidiaries.
- Higher-Risk Countries: Countries should apply enhanced due diligence measures when dealing with business relationships and transactions involving higher-risk jurisdictions.
- Reporting of Suspicious Transactions: Countries should have mechanisms in place to ensure that financial institutions report suspicious transactions promptly and cooperate with law enforcement agencies.
- Tipping-off and Confidentiality: Countries should have laws and regulations in place to prohibit tipping-off, meaning that financial institutions should not inform customers when a suspicious transaction report has been made.
- DNFBPs: Designated Non-Financial Businesses and Professions (DNFBPs), such as lawyers, accountants, real estate agents, and dealers in precious metals and stones, should be subject to regulatory and supervisory measures to prevent money laundering and terrorist financing.
- Suspicious Transaction Reporting by DNFBPs: DNFBPs should have measures in place to report suspicious transactions related to money laundering or terrorist financing promptly.
- Transparency and Beneficial Ownership of Trusts: Countries should ensure that there is accurate and up-to-date information available on the beneficial ownership of trusts to prevent their misuse for illicit purposes.
- Transparency and Beneficial Ownership of Legal Entities: Countries should ensure that there is accurate and up-to-date information available on the beneficial ownership of legal entities, including companies and partnerships, to prevent their misuse for illicit purposes.
- Regulation and Supervision of Financial Groups: Countries should regulate and supervise financial groups, including their cross-border activities, to combat money laundering and terrorist financing risks.
- Powers and Responsibilities of Competent Authorities: Competent authorities should have adequate powers, resources, and legal frameworks to effectively fulfill their roles in combating money laundering and terrorist financing.
- Regulation and Supervision of DNFBPs: Countries should establish effective systems for the regulation and supervision of DNFBPs to prevent their misuse for money laundering and terrorist financing.
- Financial Intelligence Units’ Access to Information: Countries should ensure that their financial intelligence units (FIUs) have access to the necessary information to carry out their functions effectively.
- Responsibilities of Law Enforcement and Investigative Authorities: Law enforcement and investigative authorities should have adequate resources and specialized skills to investigate and prosecute money laundering and terrorist financing cases.
- Sanctions: Countries should implement targeted financial sanctions related to money laundering and terrorist financing, complying with relevant United Nations Security Council resolutions.
- Cash Couriers (continued): Countries should have measures in place to detect and deter the cross-border transportation of currency or bearer negotiable instruments, which could be used for money laundering or terrorist financing.
- Statistics: Countries should collect and maintain relevant statistics on money laundering and terrorist financing to assess risks and measure the effectiveness of their systems.
- Guidance and Feedback: The FATF should provide guidance and promote the exchange of information on the implementation of measures to combat money laundering and terrorist financing.
- External Oversight of Regulatory and Supervisory Authorities: Countries should establish frameworks for external oversight of regulatory and supervisory authorities involved in combating money laundering and terrorist financing.
- Mutual Evaluations: Countries should undergo mutual evaluations to assess their level of compliance with the FATF recommendations and the effectiveness of their anti-money laundering and counter-terrorism financing measures.
- Technical Assistance: The FATF and other relevant bodies should provide technical assistance and capacity-building support to countries in implementing effective measures to combat money laundering and terrorist financing.
- Responsibilities of the Private Sector: The private sector, including financial institutions and DNFBPs, should actively participate in efforts to combat money laundering and terrorist financing.
- Monitoring of Regulatory and Supervisory Actions: Countries should monitor the regulatory and supervisory actions of financial institutions and DNFBPs to ensure their compliance with anti-money laundering and counter-terrorism financing measures.
- Mutual Legal Assistance: Countries should have effective mechanisms in place for mutual legal assistance in money laundering and terrorist financing cases, facilitating international cooperation.
These recommendations collectively aim to establish a robust global framework; for combating money laundering and terrorist financing, fostering international cooperation, and safeguarding the integrity of the international financial system. Contact us if you require further information about it or want to know how our SonarPulse AI Powered Compliance platform can help you streamline your AML/CFT framework.
