Financial Action Task Force

The Financial Action Task Force (on Money Laundering) (FATF), also known by its French name, Groupe d'action financière (GAFI), is an intergovernmental organisation founded in 1989 on the initiative of the G7 to develop policies to combat money laundering and to maintain certain interest.^[2] In 2001, its mandate was expanded to include terrorism financing.

Financial Action Task Force

Abbreviation	FATF
Formation	1989; 34 years ago (1989)
Type	Intergovernmental organisation
Purpose	Combat money laundering and terrorism financing
Headquarters	Paris
Region served	Europe
Membership	40
Official language	English, French
President	T Raja Kumar ^[1]
Website	fatf-gafi.org

The objectives of FATF are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. FATF is a "policy-making body" that works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas.^[3] FATF monitors progress in implementing its Recommendations through "peer reviews" ("mutual evaluations") of member countries.

Since 2000, FATF has maintained the FATF blacklist (formally called the "Call for action") and the FATF greylist (formally called the "Other monitored jurisdictions").^[4][5][6][7] The blacklist has led financial institutions to shift resources and services away from the listed.^[8] This in turn has motivated domestic economic and political actors in the listed countries to pressure their governments to introduce regulations that are compliant with the FATF.^[8]

History

FATF was formed by the 1989 G7 Summit in Paris to combat the growing problem of money laundering. The task force was charged with studying money laundering trends, monitoring legislative, financial and law enforcement activities taken at the national and international level, reporting on compliance, and issuing recommendations and standards to combat money laundering. At the time of its formation, FATF had 16 members, which by 2023 had grown to 40.^[9][10] In its first year, FATF issued a report containing forty recommendations to more effectively fight money laundering. These standards were revised in 2003 to reflect evolving patterns and techniques in money laundering.

The mandate of the organisation was expanded in 2001 to include terrorist financing following the September 11 terror attacks.

FATF Recommendations

Creation and ongoing maintenance

Together, the Forty Recommendations on Money Laundering and eight (now nine) Special Recommendations on Terrorism Financing set the international standard for anti-money laundering measures and combating the financing of terrorism and terrorist acts. They set out the principles for action and allow countries a measure of flexibility in implementing these principles according to their particular circumstances and constitutional frameworks. Both sets of FATF Recommendations are intended to be implemented at the national level through legislation and other legally binding measures.^[11] There are multiple groups to organise the Recommendations; AML/CFT Policies and Coordination, Money Laundering and Confiscation, Terrorist Financing and Financial of Proliferation, Preventive Measures, Transparency and Beneficial Ownership of Legal Persons and Arrangements, Powers and Responsibilities of Competent Authorities and other Institutional Measures, and International Cooperation.^[12]

In February 2012, the FATF codified its recommendations and Interpretive Notes into one document that maintains SR VIII (renamed Recommendation 8), and also includes new rules on weapons of mass destruction, corruption and wire transfers (Recommendation 16, commonly known as the “travel rule”).^[13]

In June 2019, the FATF released its first guidance on the risk-based approach for virtual assets and virtual asset service providers. This guidance offers recommendations on how member jurisdictions should regulate cryptocurrency businesses, placing anti-money laundering and countering the financing of terrorism (AML/CFT) obligations on VAs and VASPs. It also extended Recommendation 16 to VASPs.

This guidance was updated on March 19 and October 2021.^[14]

Forty recommendations on money laundering

The FATF's Forty Recommendations on money laundering of 1990 are the primary policies issued by FATF^[15] and the Nine Special Recommendations (SR) on Terrorism Financing (TF).^[16] The Recommendations are seen globally as the world standard in anti-money laundering as well many countries have made a commitment to put the Forty Recommendations in place. The Recommendations cover the criminal justice system and law enforcement, international co-operation, and the financial system and its regulation.^[17] The FATF completely revised the Forty Recommendations in 1996 and 2003.^[15] By 1996 the Recommendations had to be updated to include more than just drug-money laundering, as well as to keep up with changing techniques.^[12] The 2003 Forty Recommendations require states, among other things, to:

• Implement relevant international conventions
• Criminalise money laundering and enable authorities to confiscate the proceeds of money laundering
• Implement customer due diligence (e.g., identity verification), record keeping and suspicious transaction reporting requirements for financial institutions and designated non-financial businesses and professions
• Establish a financial intelligence unit to receive and disseminate suspicious transaction reports, and
• Cooperate internationally in investigating and prosecuting money laundering

NINE Special Recommendations on Terrorism Financing

The FATF has issued Special Recommendations on Terrorist Financing. In October 2001 the FATF issued the original eight Special Recommendations on Terrorism Financing,^[18] following the September 11 attacks in the United States. Among the measures, Special Recommendation VIII (SR VIII) specifically targeted non-profit organisations. This was followed by the International Best Practices Combating the Abuse of Non-Profit Organisations in 2002, released one month before the U.S. Department of Treasury's Anti-Terrorist Financing Guidelines, and the Interpretive Note for SR VIII in 2006. A ninth Special Recommendation was added later.^[12] In 2003 the Recommendations, as well as the 9 Special Recommendations were adjusted for the second time.^[12]

Compliance mechanism

In February 2004 (Updated as of February 2009) the FATF published a reference document Methodology for Assessing Compliance with the FATF 40 Recommendations and the FATF 9 Special Recommendations.^[19] The 2009 Handbook for Countries and Assessors outlines criteria for evaluating whether FATF standards are achieved in participating countries.^[20] FATF evaluates a country's performance based on its assessment methodology that covers: 1. technical compliance, which is about legal and institutional framework and the powers and procedures of the competent authorities, and 2. effectiveness assessment, which is about the extent to which the legal and institutional framework is producing the expected results.^[21]

There are many differences between countries dealing with their legal and financial system, which is taking into consideration by the FATF. There is a set minimum of actions that meet a standard, that all countries can use regarding their own situation. This standard covers all actions that a nation should take within their regulatory systems and their criminal justice systems as well the preventive measures that should be taken by specified businesses, professions, and institutions.^[22]

For non-profit organisations (NPOs) there has been a command for more financial transparency, to make sure that they do not become easier for terrorist organisations to launder money through the organisations. This hypothesis was thought of by intergovernmental organisations. These intergovernmental organisations include the World Bank, Organisation for Economic Co-operation and Development and the International Monetary Fund.^[23] NPOs are put under surveillance, especially when they are associated with "suspect communities" or if they are based or working in zones of conflict.^[24]

FATF data is a key indicator of the quality of AML/CFT systems in the Basel AML Index, a money laundering and terrorist financing risk assessment tool developed by the Basel Institute on Governance.

There are still compliance issues in areas that might afford exploitative opportunities for transnational crime and terrorist networks. This can have detrimental effects on a country's national security through increasing risks of money laundering and financing of terrorism as well as wastage due to the implementation of inappropriate regulatory measures. The objective is to increase mitigation strategies that would enable scarce resources in fighting money laundering and terrorism financing threats.^[25]

The FATF follows strict criteria to identify potential threats.^[26]

Black or greylisting of non-compliant nations

Main article: FATF blacklist

In addition to FATF's "Forty plus Nine" Recommendations, in 2000 FATF issued a list of "Non-Cooperative Countries or Territories" (NCCTs), commonly called the FATF Blacklist. This was a list of 15 jurisdictions that, for one reason or another, FATF members believed were uncooperative with other jurisdictions in international efforts against money laundering (and, later, terrorism financing). Typically, this lack of cooperation manifested itself as an unwillingness or inability (frequently, a legal inability) to provide foreign law enforcement officials with information relating to bank account and brokerage records, and customer identification and beneficial owner information relating to such bank and brokerage accounts, shell corporations, and other financial vehicles commonly used in money laundering. All remaining Non-Cooperative Countries and Territories in the NCCT initiative were delisted in October 2006, however FATF continues to maintain a "blacklist" of "High Risk" jurisdictions and a "greylist" of "Jurisdictions Under Increased Monitoring", and issues updates as countries on High-risk and non-cooperative jurisdictions list have made significant improvements in standards and cooperation. The FATF also issues updates to identify additional jurisdictions that pose Money Laundering/Terrorist Financing risks.^[27]

The FATF surveyed 26 jurisdictions to check their ability and willingness to co-operate with other countries in the international fight against money laundering. The review contained the summaries of these surveys. Fifteen jurisdictions were branded "non-cooperative countries or territories", because of the high number of harmful practices identified in these jurisdictions.^[28]

As of December 2022^[update], countries in the blacklist are Iran, Myanmar and North Korea.^[29] Countries and territories in the grey list are Albania, Barbados, Burkina Faso, Cambodia, Cayman Islands, Democratic Republic of the Congo, Gibraltar, Haiti, Jamaica, Jordan, Mali, Morocco, Mozambique, Panama, Philippines, Senegal, South Sudan, Syria, Tanzania, Turkey, Uganda, United Arab Emirates and Yemen.^[30]

Members and affiliate organisations

As of October 2023^[update], FATF has 38 countries as full members.^[31] However, through several associated regional bodies, the FATF network comprised 187 countries in total, as of 2012^[update].^[12] The FATF also works in close co-operation with a number of international and regional organisations.^[31] Countries are subjected to evaluation by FATF to see that they are upholding laws and regulations enforced by FATF.

Full members

As of 2023^[update] The FATF currently comprises 38 member jurisdictions and two regional organisations, representing most major financial centres in all parts of the globe:^[31]

Regional organisations

1.   European Commission
2.   Gulf Cooperation Council

Countries and other jurisdictions

1.   Argentina
2.   Australia
3.   Austria
4.   Belgium
5.   Brazil
6.   Canada
7.   China
8.   Denmark
9.   Finland
10.   France
11.   Germany
12.   Greece
13.   Hong Kong, China (originally joined under the designation   British Hong Kong in 1991)
14.   Iceland
15.   India
16.   Indonesia
17.   Ireland
18.   Israel
19.   Italy
20.   Japan
21.   Luxembourg
22.   Malaysia
23.   Mexico
24.   Netherlands (comprises   the Netherlands,   Aruba,   Curacao and   Sint Maarten)
25.   New Zealand
26.   Norway
27.   Portugal
28.   Russian Federation (suspended)^[32]
29.   Saudi Arabia
30.   Singapore
31.   South Africa
32.   South Korea
33.   Spain
34.   Sweden
35.    Switzerland
36.   Turkey
37.   United Kingdom
38.   United States

FATF-style regional bodies

As of 2023^[update] there are 9 "FATF-style regional bodies" that are associate members of the FATF:^[31]

• Asia/Pacific Group on Money Laundering (APG)
• Caribbean Financial Action Task Force (CFATF)
• Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG)
• Eurasian Group (EAG)
• Council of Europe Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (Moneyval, formerly PC-R-EV)
• Financial Action Task Force of Latin America (GAFILAT), formerly The Financial Action Task Force on Money Laundering in South America (GAFISUD)
• Inter-Governmental Action Group against Money Laundering in West Africa (GIABA)
• Middle East and North Africa Financial Action Task Force (MENAFATF)
• Task Force on Money Laundering in Central Africa (GABAC)

Countries that are not full FATF members but are members of the FATF-style regional bodies are entitled to attend FATF meetings as individual member-delegates of the regional bodies and to intervene on policy and operational issues.

Observer members

There are 28 international organisations with the "FATF Observer" status. These include the International Monetary Fund, the UN with six expert groups and the World Bank and the OECD. All the observer organisations have anti-money laundering as one of their tasks.^[31] The observer organisations include:^[31]

• African Development Bank
• Anti-Money Laundering Liaison Committee of the Franc Zone (CLAB) [French]
• Asian Development Bank
• Basel Committee on Banking Supervision (BCBS)
• Camden Asset Recovery Inter-agency Network (CARIN)
• Egmont Group of Financial Intelligence Units
• European Bank for Reconstruction and Development (EBRD)
• Group of International Finance Centre Supervisors
• United Nations Office on Drugs and Crime (UNODC)
• United Nations Counter-Terrorism Committee Executive Directorate (UNCTED)

Effects of FATF

The FATF has been characterized as effective in shifting laws and regulations to combat illicit financial flows. FATF incentivizes stricter regulations through its public noncomplier list, which leads financial institutions to shift resources and services away from the countries on the blacklist. This in turn motivates domestic economic and political actors in the listed countries to pressure their governments to introduce regulations that are compliant with the FATF.^[8]

The effect of the FATF Blacklist has been significant, and arguably has proven more important in international efforts against money laundering than has the FATF Recommendations. While, under international law, the FATF Blacklist carries with it no formal sanction, in reality, jurisdictions placed on the FATF Blacklist often face intense financial pressure.^[33]

FATF has made it difficult for non-governmental organisations (NGOs) in countries to access funds to aid in relief situations due to strict FATF criteria. FATF criteria have mainly impacted NGOs that are located in Middle Eastern and terror-ridden countries. Some argue that the FATF Recommendations do not specifically set out restrictions for NGOs which often results in them going against FATF Recommendation.^[34]

In a 2020 paper, Ronald Pol states that while the FATF has been very successful in getting its policies adopted worldwide, the actual impact of those policies is rather small: according to Pol's estimates, less than 1% of illegal profits are seized, with the costs of implementing the policies being at least one hundred times larger. Pol contends that industry and policymakers consistently ignore this, instead evaluating the policies based on success metrics that are largely irrelevant.^[35]

See also

•  Money portal

• Hawala
• Hundi
• Informal value transfer system
• Politically exposed person
• Remittance
• White-collar crime
• Wolfsberg Group

References

1. "FATF – Presidency". FATF-gafi.org. Retrieved 2020-07-07.
2. The FATF in the Global Financial Architecture: Challenges and Implications. International, Transnational & Comparative Law Journal. Social Science Research Network (SSRN). Accessed 4 April 2019.
3. "About - Financial Action Task Force (FATF)".
4. FATF nations, Full member nations, Observer nations, Call for action nations (Blacklisted nations), Other monitored jurisdictions (greylisted nations), FATF, accessed 24 October 2019.
5. "About FATF". FATF. Retrieved 1 May 2018.
6. Chohan, Usman W. (Mar 14, 2019). "The FATF in the Global Financial Architecture: Challenges and Implications". doi:10.2139/ssrn.3362167. S2CID 197804604. SSRN 3362167. Retrieved Oct 21, 2022 – via papers.ssrn.com. {{cite journal}}: Cite journal requires |journal= (help)
7. "FATF Works". FATF. Retrieved 1 May 2018.
8. Morse, Julia C. (2021). The Bankers' Blacklist: Unofficial Market Enforcement and the Global Fight against Illicit Financing. Cornell University Press. ISBN 978-1-5017-6151-5. JSTOR 10.7591/j.ctv1hw3x0d.
9. "Countries - Financial Action Task Force (FATF)".
10. Rahayu, Riri (2023-10-30). Bhwana, Petir Garda (ed.). "Indonesia Pledges to Combat Money Laundering, Terrorist Financing as FATF 40th Member". Tempo.co. Translated by Najla Nur Fauziyah. from the original on 2023-10-31. Retrieved 2023-10-31.
11. "National money laundering and terrorist financing risk assessment". FATF-GAFI. Retrieved 25 June 2015.
12. (PDF) (Report). FATF. Archived from the original (PDF) on 8 March 2021.
13. "INTERNATIONAL STANDARDS ON COMBATING MONEY LAUNDERING AND THE FINANCING OF TERRORISM & PROLIFERATION. FATF Recommendations" (PDF). FATF/OECD. p. 130. Retrieved 23 March 2015.
14. "12 Outcomes from FATF's Oct 2021 Updated Guidance for Virtual Assets and VASPs". Notabene.
15. [1] August 14, 2006, at the Wayback Machine
16. [2] August 13, 2006, at the Wayback Machine
17. Johnson, Jackie (2008). "Third round FATF mutual evaluations indicate declining compliance". Journal of Money Laundering Control. 11 (1): 47–66. doi:10.1108/13685200810844497.
18. "Special Recommendations- Financial Action Task Force (FATF)". www.fatf-gafi.org. 2021-03-08. from the original on 2021-03-08. Retrieved 2021-03-17.
19. "Methodology for Assessing Compliance with the FATF 40 Recommendations and the FATF 9 Special Recommendations" (PDF). FATF-GAFI.org. FATF-GAFI. Retrieved 25 June 2015.
20. "AML/CFT Evaluations and Assessments" (PDF). FATF-GAFI. Retrieved 25 June 2015.
21. Pakistan on FATF’s grey list: what, why, and why now?, Dawn (newspaper), 10 June 2019.
22. Salierno, David (2003). "FATF revisits money laundering". The Internal Auditor; Altamonte Springs. 60 (4): 16–19 – via ProQuest.
23. Kenton, Will. "Financial Action Task Force (FATF)". Investopedia. Retrieved 2019-03-31.
24. "Counter-Terrorism, "Policy Laundering," and the FATF: Legalizing Surveillance, Regulating Civil Society - IJNL Vol. 14 Iss. 1-2". www.icnl.org. Retrieved 2019-02-10.
25. Choo, Kim-Kwang Raymond (2013). "New payment methods: A review of 2010–2012 FATF mutual evaluation reports". Computers & Security. 36: 12–26. doi:10.1016/j.cose.2013.01.009.
26. Stessens, Guy (2001). "The FATF 'Black List' of Non-Cooperative Countries or Territories". Leiden Journal of International Law. 14: 199–207. doi:10.1017/S0922156501000097. S2CID 145417201.
27. "High-risk and non-cooperative jurisdictions". FATF-GAFI. Retrieved 25 June 2015.
28. Stessens, Guy (2001). "The FATF 'Black List' of Non-Cooperative Countries or Territories". Leiden Journal of International Law. 14 (1): 199–207. doi:10.1023/a:1017946510335. ISSN 0922-1565.
29. "High-risk and other monitored jurisdictions". FATF. Retrieved 4 December 2022.
30. "Jurisdictions under Increased Monitoring - 21 October 2022". FATF. Retrieved 4 December 2022.
31. . FATF. Archived from the original on 2023-10-31. Retrieved 2023-10-31.
32. Hummel, Tassilo; Melander, Ingrid (25 February 2023). "Financial crime watchdog FATF suspends Russia over Ukraine war". Reuters. Retrieved 26 February 2023.
33. "Counter-Terrorism, "Policy Laundering," and the FATF: Legalizing Surveillance, Regulating Civil Society" (PDF). The International Journal of Not-for-Profit Law. Retrieved 12 September 2023.
34. "Counter-Terrorist Financing and Humanitarian Security - World". ReliefWeb. 5 April 2017. Retrieved 2019-03-31.
35. Pol, Ronald F. (2020). "Anti-money laundering: The world's least effective policy experiment? Together, we can fix it". Policy Design and Practice. 3 (1): 73–94. doi:10.1080/25741292.2020.1725366.

Further reading

• Findley, Michael G.; Daniel L. Nielson and J. C. Sharman (Fall 2013). "Using Field Experiments in International Relations: A Randomized Study of Anonymous Incorporation". International Organization, Vol. 67, No. 4, pp. 657–693. JSTOR 43282083.
• Müller, Sebastian R. (2006). Hawala: An Informal Payment System and Its Use to Finance Terrorism, VDM Verlag, ISBN 978-3-86550-656-6

External links

  Media related to Financial Action Task Force on Money Laundering at Wikimedia Commons

• Official website