The Financial Action Task Force (FATF) is the inter-governmental body tasked with global Anti-Money Laundering (AML) and Counter-Terrorist Financing (CFT). The body puts together recommendations, also known as FATF Standards, to coordinate a uniform response to fighting organized crime.
The Plenary is FATF’s decision-making function, and it meets three times a year. The most recent of these meetings was in June 2021. It was led by German President, Dr. Marcus Pleyer with over 205 members attending globally.
This article discusses the strategic initiatives to come out of this meeting.
Digital Transformation & AML/CFT
One of the main topics for discussion at the plenary was how advancements in technology offer an opportunity to improve AML and CFT effectiveness.
The digital transformation has made it easier and faster to create systems that help in the fight against money laundering and terrorist financing. Technology helps financial institutions such as banks to identify and assess risks in a way that is both accurate and fast.
FATF identified how using data pooling and collaborative analytics tools helps these institutions change the way they analyze large amounts of data. This means they can analyze high numbers of transactions and identify suspicious behavior. Furthermore, new technology also helps achieve financial inclusion by bringing more people into the regulated financial system.
This report discusses available technologies, policies needed to use them effectively, and the obstacles standing in the way of success.
The Risks Associated With Virtual Assets
June 2021 saw an end to the second 12-month review of the implementation of FATF’s revised Standards on virtual assets and Virtual Asset Service Providers (“VASPs”).
FATF found that many jurisdictions have made good progress since 2019 – with 58 of the 128 reporting jurisdictions have now implemented the revised Standards. 52 are now regulating the operations of VASPs, and 6 are prohibiting the operation of cryptocurrency providers altogether.
A Failure To Implement The “Travel Rule”
Most jurisdictions are still yet to implement the “Travel Rule,” amongst other FATF requirements, and, as such, there is much more work needed. The Travel Rule is the common name for FATF Recommendation #16 on combating money laundering. It requires parties in a digital transaction to exchange identity information. In the future, there will be an emphasis on actions that help mitigate the risk of ransomware-related virtual asset use.
The revised guidance is expected in October 2021.
Money Laundering and Environmental Crime
Research into this area by FATF, alongside the Illegal Wildlife Trade, has identified that criminals are using trade-based fraud and shell companies to launder money obtained from environmental crime. Illegal goods are mixed with legal ones to make them harder to detect.
FATF’s report requires AML authorities to work with environmental crime specialists to tackle this issue.
Ethnically or Racially Motivated Terrorism Financing
FATF is exploring how to tackle Extreme Right-Wing terrorism (“ERW”) while bringing more awareness to a complex problem.
This issue has become more prevalent in recent years, having increased in frequency. Attacks of this nature can involve organizations and transnational movements. Those involved are more and more sophisticated in how they move money. Interestingly, most of ERW funding comes from legitimate and legal sources like donations.
The FATF report finalized at the plenary highlights the challenges in tackling ERW financing, such as varying views on how it should be treated and a lack of designated resources.
Countries are encouraged to dedicate more time and funds to develop their understanding of the issue.
Operational Challenges of Asset Recovery
Asset recovery is one of the most effective tools to fight against money laundering and terrorist financing. Not only does it seize the proceeds of crime, but it also compensates victims, builds trust in society, and keeps the money out of the financial system.
FATF identified that most countries are ineffective when it comes to their ability to recover assets successfully. It has offered guidance to government authorities looking at overcoming key obstacles to follow up at the next meeting.
Proliferation Financing Risks
FATF has put in place new mandatory requirements. Countries and financial institutions must identify, assess, understand, and mitigate proliferation financing risk.
FATF also updated its Interpretive Note to Recommendation 15. The update provides guidance on how VASPs should be treated in relation to regulations and also how financial institutions should deal with VASPs. The update also clarifies that VAPs are also obliged to carry out proliferation risk assessments in the same way financial institutions currently do.
Transparency Around Beneficial Ownership
Establishing who is behind companies is integral to stopping criminals from hiding behind a web of complex structures designed to confuse.
The need for more transparency around beneficial ownership is something FATF has been advocating for the last two decades. Despite that, countries are not doing enough to make sure beneficial ownership information is available.
G7 Ministers have acknowledged the problems this causes and have agreed to work on improving the availability of this information. FATF is also considering amending Recommendation 24 to make it stronger and with stricter controls. This is due to be discussed again in October.
FATF has been working alongside the Eastern and Southern African Anti-Money Laundering Group to combat money laundering and terrorist financing in South Africa. While there is a solid legal framework in place, South Africa needs to do more in proactively pursuing money laundering and terrorist financing in line with its risk profile.
FATF has also worked with the Asia/Pacific Group on Money Laundering assessment of Japan’s measures to combat money laundering and terrorist financing. It found that Japan’s measures are working and it was demonstrating good results. However, there needs to be more work in some areas, including investigating and prosecuting money laundering and terrorism financing offenses.
As a result of significant progress made in addressing AML/CFT deficiencies, Ghana is no longer subject to FATF’s increased monitoring.
Haiti, Malta, the Philippines, and South Sudan
These 4 countries were all added to the list of jurisdictions subject to increased monitoring.
FATF is working with a number of jurisdictions where their counterterrorism, counter-money laundering, and proliferation financing regimes are not efficient. These jurisdictions under increased monitoring have committed to resolving the issues identified within a set timescale.
Strengthening the Global Network
The FATF’s efforts are only effective if the safeguards are implemented worldwide. Therefore, the plenary underlined the role of FATF-styled Regional Bodies (FSRBs) in combating money laundering. These independently operating units ensure that member countries effectively implement FATF-set standards. To this end, FATF is has agreed to provide additional support and resources for FSRBs.
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