Financial Action Task Force (FATF)

3.1 What is the FATF?

The Financial Action Task Force (FATF) can be seen as the international standard-setter in the fight against terrorist financing and money laundering. It was established in 1989, by a Group of Seven (G-7) Summit held in Paris. The summit recognised the growing threat posed by money laundering to the banking system and financial institutions and set up the FATF to develop and promote national and international policies, globally, to help eliminate this threat. In 2001, the FATF took over responsibility for the development of standards in the fight against terrorist financing.

The FATF’s main responsibility is to ensure global action to combat money laundering and terrorist financing is undertaken. Since its creation, the FATF has been at the forefront of measures designed to counter criminal attempts to use the financial system to further criminal and terrorist purposes. Most notably, in 1990 the FATF established a series of money laundering recommendations. In 2001, they established a series of special recommendations on the prominent threat of terrorist financing, collectively known as the 40+9 Recommendations whose aim was to unite anti-money laundering and terrorist financing efforts into one universal instrument.

The FATF examines techniques and counter-measures and reviews whether existing national and international policies are sufficient to combat the developing threat. The FATF monitors compliance with the 40+9 recommendations through a two-pronged strategy.

Firstly, member countries complete annual self-assessment style questionnaire and secondly, the FATF regularly conducts on-site Mutual Evaluation Report examinations on individual jurisdictions, assessing the effectiveness of their national policies in dealing with money laundering and terrorist financing. The importance was reiterated in 2005 by the United Nations Security Council:

[The United Nations] strongly urges all Member States to implement the comprehensive, international standards embodied in the Financial Action Task Force’s (FATF) Forty Recommendations on Money Laundering and the FATF Nine Recommendations on Terrorist Financing [1].

3.2 FATF Money Laundering Recommendations

Global efforts to combat money laundering and the financing of terrorism have been tailored to attack criminal and terrorist organisations through their financial operations [2]. The strategy has been aimed at depriving them of the means to act and gain knowledge of how their financial networks and methods work in order to prevent any future operations.

The 40 recommendations mentioned above are intended to provide counter-measures against money laundering and encompass the criminal justice system, law enforcement, the financial system and its regulators, together with international co-operation. They also set out principles and minimum standards for action.

Countries are free to implement the details of the recommendations in the manner they choose, in order to fit them into their own constitutional frameworks. Despite not being binding, many countries have chosen to make a commitment to implement them in order to combat money laundering.

The recommendations were first published in 1990, and have been subsequently revised in 1996 and 2003. They are constantly reviewed and updated to take into account any changes or anticipated changes in money laundering trends. In 1996, the FATF issued a series of interpretative notes designed to clarify their application.

In 2003, the FATF amended the scope of the recommendations to include designated non-financial businesses and professionals. Designated non-financial businesses and professionals are defined by the FATF to include casinos, real estate agents, dealers in precious stones and metals, and lawyers, notaries, other independent legal professionals and accountants.

The 2003 amendments applied, for the first time, customer/ client due diligence and record keeping practices to designated non-financial businesses and professionals. They are required to report transactions suspected of being linked to money laundering to the designated authorities.

In the case of lawyers, the FATF recommends that lawyers be excused from this responsibility if their knowledge or suspicions arises as a result of legal professionally privileged circumstances. The 2003 amendments revised the recommendations to include the FATF’s enhanced counter terrorist financing mandate.

The forty recommendations suggest (summarised):

  1. The criminalisation of money laundering on similar terms to those suggested in the 1988 UN convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances and the 2000 UN Convention against Transnational Organized Crime, as well as for extended sanctions (civil and regulatory) to be applied to legal persons who fail to adhere to the Directive;

  2. That countries adopting the recommendations should establish a national centre for receiving information about suspected money laundering transactions (a Financial Intelligence Unit or FIU) and ensure that there are designated law enforcement authorities that have responsibility and resources necessary to investigate such transactions;

  3. The adoption of measures such as tracing in order to confiscate property and proceeds from money laundering. The recommendations also call for steps that prevent the State from recovering such property to be voidable;

  4. That client due diligence should be completed by all financial institutions and non-financial businesses and professions, including lawyers, and records to be kept for five years. The recommendations also call for ‘special attention’ to be paid to all complex and unusually large transactions and to those transactions involving new or developing technologies;

  5. That there be a requirement for all financial institutions and non-financial businesses and professions including lawyers to report suspicious transactions to the Financial Intelligence Unit (FIU) and for protection/ immunity to be offered to such informants;

  6. Financial institutions should develop programmes, such as internal policies, designed to combat money laundering and terrorist financing and ensure that all subsidiaries adhere to the recommendations to the extent the country has implemented them;

  7. That all shell banks should be discontinued and all financial institutions should report all domestic and international currency transactions above a certain amount;

  8. That there should be enhanced regulation, supervision and guidance offered to financial institutions and non-financial businesses and professions, in their compliance with the recommendations; and

  9. That there should be improved efficiency regarding international co-operation, mutual legal assistance including possible extradition and information sharing amongst jurisdictions.

There are interpretative notes available.

3.3 FATF Terrorist Financing Special Recommendations

The nine special recommendations, designed to combat terrorist financing were first published by the FATF in 2001, in response to the terrorist attack on September 11 2001. They initially contained only eight recommendations encompassing the criminalisation of terrorist financing and provision for combating the problem. They were then updated in 2004 to include cash couriers.

Cash couriers are used by individuals who wish to transfer cash internationally. The benefits of the human courier system are understandable. There is no electronic transfer and, therefore, no lasting record of the transaction. It is also arguable that the courier carries all the risk in carrying the “dirty” money into the destination country.

The amendment reflected the growing concern that money resultant from criminal activities, such as drugs trafficking, is being increasingly used to fund terrorist extremists, The Irish Republican Army (IRA) in Northern Ireland, the Revolutionary Armed Forces of Colombia (FARC), the Madrid bombings in 2004 and the September 11 attacks were arguably funded by money gained as a result of criminal activities [3]).

Implementation has been monitored through a self-assessment questionnaire, designed to elicit details from different jurisdictions, as to their progress with their implementation.

The nine special recommendations call for (summarised):

  1. The immediate ratification and implementation of UN anti-financing of terrorism instruments, such as the 1999 United Nations International Convention for the Suppression of the Financing of Terrorism;

  2. The criminalisation of the financing of terrorism, terrorist acts and terrorist organisation and the freezing and confiscation of terrorist assets;

  3. A national method of reporting suspected funds for terrorism, terrorist acts or terrorist organisations to be established;

  4. The international co-operation and mutual legal assistance to ensure prompt and effective criminal/civil investigations and prosecutions of suspected terrorist financing, acts and organisational breaches;

  5. Financial and non-financial entities providing a service for the transmission of money or value to be subject to all of the FATF Recommendations;

  6. Client due diligence to be completed by all financial institutions and for enhanced security measures to be adopted in relation to clients who do not provide complete originator information; and

  7. Enhanced regulation of non-profit organisations and other entities particularly susceptible to abuse, together with enhanced measures designed to track the physical cross-boarder transportation of funds.

The ninth recommendation called for countries to adopt measures to detect and prevent the physical cross-border transportation of money related to terrorist financing and money laundering.

The goal in providing these special recommendations is to ensure that financial institutions and other susceptible entities do not unwittingly hide or move terrorist funds. The FATF has also provided guidance on detecting terrorist financing activities for financial institutions and for the implementation of the special recommendations in general.

3.4 FATF Members and Observers

The following jurisdictions are members of the FATF and, therefore, bound to adhere to the FATF’s 40+9 Recommendations (see above):

  • Argentina
  • Australia
  • Austria
  • Belgium
  • Brazil
  • Canada
  • China
  • Denmark
  • European Commission (Member States list)
  • Finland
  • France
  • Germany
  • Greece
  • Gulf Co-operation Council
  • Hong Kong, China
  • Iceland
  • India 
  • Ireland
  • Italy
  • Japan
  • Kingdom of the Netherlands (The Netherlands, Netherlands Antilles, Aruba)
  • Luxembourg
  • Mexico
  • New Zealand
  • Norway
  • Portugal
  • Russian Federation
  • Singapore
  • South Africa
  • Spain
  • Sweden
  • Switzerland
  • Turkey
  • United Kingdom
  • United States

The following jurisdiction has observer status:

  • Republic of Korea

3.4.1 FATF Blacklist

In 2000, the FATF issued its first list of “Non-Cooperative Countries or Territories”. The list contained FATF members believed to be uncooperative in international efforts against money laundering and later terrorist financing.

The most common breach of the FATF mandate is a jurisdiction’s unwillingness or inability to provide other foreign authorities with information relating to on-going investigations of suspected international money laundering, such as client or bank account details.

At the time of writing [4] no country was present on the FATF Blacklist.

3.5 FATF Sub-Organisations

There are numerous associate members and observer body organisations which supplement the work of the FATF and have specific anti-money laundering and terrorist financing functions. These “sub-organisations” can be split into three groups: Associate Member Organisations, Observer Bodies and Other International Organisations.

They are described below:

3.5.1 Associate Members:

The origins of Asia/Pacific Group on Money Laundering or APG date back to the “raising awareness” stage of the FATF in the early 1990s. It was established to ensure the adoption, implementation and enforcement of the FATF’s recommendations for universally adopted international anti-money laundering standards within Asia and the Pacific countries. After the events of September 11, the APG, like the FATF, expanded the scope of its work to include countering terrorist financing, and the universal adoption of the FATF’s special recommendations.

The APG’s duties include providing assistance to countries and territories within its scope and to encourage the co-operation of countries with confiscation, forfeiture and extradition matters and information sharing. The APG provides guidance to countries in setting up systems and organisations for reporting suspicious transactions, helping the countries develop systems tailored to regional factors and circumstances.

The APG also conducts mutual evaluation reports, in a similar manner to the FATF. It determines the extent to which countries and territories within its scope have adhered to the FATF anti-money laundering and terrorist financing recommendations.

The following jurisdictions are members of the APG:

  • Afghanistan
  • Australia
  • Bangladesh
  • Brunei Darussalam
  • Cambodia
  • Canada
  • Chinese Taipei
  • Cook Islands
  • Fiji Islands
  • Hong Kong, China
  • India
  • Indonesia
  • Japan
  • Republic of Korea (South Korea)
  • Lao People’s Democratic Republic
  • Macao, China
  • Malaysia
  • Maldives
  • The Marshall Islands
  • Mongolia
  • Myanmar
  • Nauru
  • Nepal
  • New Zealand
  • Niue
  • Pakistan
  • Palau
  • Papua New Guinea
  • The Phillippines
  • Samoa
  • Singapore
  • Solomon Islands
  • Sri Lanka
  • Thailand
  • Timor Leste
  • Tonga
  • United States of America
  • Vietnam
  • Vanuatu

The Caribbean Financial Action Task Force (CFATF) was designed to encourage the co-ordination of and the participation in anti-money laundering and terrorist financing training programmes. It is amed at assessing the degree to which its members have implemented the recommendations of the FATF and CFATF. Membership includes Jamaica, Costa Rica and Panama.

CFATF was established in the early 1990s and adapted the recommendations of the FATF to have regional perspective. Furthermore, an important aim of the CFATF is to continuingly develop measures designed to combat the laundering and the re-direction of the proceeds from crime.

The following jurisdictions are members of CFATF:

  • Anguilla
  • Antigua & Barbuda
  • Aruba
  • Bahamas
  • Barbados
  • Belize
  • Bermuda
  • British Virgin Islands
  • Cayman Islands
  • Costa Rica
  • Dominica
  • Dominican Republic
  • El Salvador
  • Grenada
  • Guatemala
  • Guyana
  • Haiti
  • Honduras
  • Jamaica
  • Montserrat
  • Netherlands Antilles
  • Nicaragua
  • Panama
  • Saint Kitts and Nevis
  • Saint Lucia
  • Saint Vincent & the Grenadines
  • Suriname
  • Trinidad and Tobago
  • Turks and Cacios Islands
  • Venezuela

Members of the Financial Action Task Force on Money Laundering in South America or GAFISUD include amongst others Colombia, Chile, Brazil and Argentina. This particular FATF sub-organisation was created in 2000 with the aim of co-ordinating efforts towards developing and implementing a global strategy to prevent money laundering and the financing of terrorism. Like the other sub-organisations, GAFISUD conscientously co-operates with the FATF, with the purpose of achieving this aim.

GAFISUD carries out a similar task to that of the FATF in that it carries out a series of mutual evaluations on member countries, to see the extent to which they have implemented the FATF Recommendations and Special Recommendations (the 40+9 recommendations). It is also committed to co-ordinating anti-money laundering training and educational programmes.

The following jurisdictions are members of GAFISUD:

  • Argentina
  • Bolivia
  • Brazil
  • Chile
  • Colombia
  • Ecuador
  • Mexico
  • Paraguay
  • Perú
  • Uruguay

The following jurisdictions are observers of GAFISUD:

  • Germany
  • Spain
  • France
  • Portugal
   

The Middle East & North Africa Financial Action Task Force (MENAFATF) is a voluntary organisation, established by a regional agreement. It does not derive from an international treaty, and adheres to cultural values, constitutions and legal systems.

MENAFATF was established to ensure that countries within the Middle East and North Africa (the MENA) region comply with the standards and measures established by the FATF 40+9 recommendations. Its objective is to raise and unite compliance and standards within the region, in order to create an effective system of combating money laundering and the financing of terrorism.

The rules and procedures of MENAFATF are determined via a consensus of the members and closely resemble those of other international bodies such as the FATF.

The following jurisdictions are members of MENAFATF:

  • Algeria
  • Bahrain
  • Egypt
  • Jordan
  • Kuwait
  • Lebanon
  • Morocco
  • Oman
  • Qatar
  • Saudi Arabia
  • Syria
  • Tunisia
  • United Arab Emirates
  • Yemen

The Council of Europe Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism or MONEYVAL was established in 1997 to conduct self and mutual assessments and evaluations of anti-money laundering, and later, anti-terrorist financing measures adopted by members. Typically, members of MONEYVAL are not members of the FATF directly.

MONEYVAL aims at encouraging member jurisdictions to improve their anti-money laundering measures, to bring them in line with the recommendations of the FATF and to facilitate and enhance international co-operation.

MONEYVAL works in a similar way to the European Commission, in that members appoint up to three national or international legal anti-money laundering experts to form the hierarchy of MONEYVAL. Additionally, MONEYVAL ‘employees’ also consist of past and current Presidency of the FATF and scientific experts.

The following jurisdictions are members of MONEYVAL:

  • Albania
  • Andorra
  • Armenia
  • Azerbaijan
  • Bosnia and Herzegovina
  • Bulgaria
  • Croatia
  • Cyprus
  • Czech Republic
  • Estonia
  • France
  • Georgia
  • Hungary
  • Latvia
  • Liechtenstein
  • Lithuania
  • Malta
  • Moldova
  • Monaco
  • Montenegro
  • The Netherlands
  • Poland
  • Romania
  • Russian Federation
  • San Marino
  • Serbia
  • Slovakia
  • Slovenia
  • The former Yugoslav Republic of Macedonia
  • Ukraine

The following jurisdictions are observers of MONEYVAL:

  • Canada
  • Holy See (The Vatican City)
  • Israel
  • Japan
  • Mexico
  • United States of America
   

3.5.2 Observer Bodies:

The Eurasian Group (EAG) was set up in 2004 resulting from the initiative of the Russian Federation. The move was highly supported by the FATF, the International Monetary Fund (IMF), the World Bank and several other countries.

The EAG is a FATF-style body that is not part of any other FATF style body, such as MONEYVAL. Its objective is to encourage its members to adopt a global system of preventing money laundering and terrorist financing. Similar to many other bodies, the EAG’s aim is to facilitate the consistent implementation of anti-money laundering and anti-terrorist financing standards and to evaluate the effectiveness of existing anti-money laundering and anti-terrorist financing mechanisms.

Also, EAG encourages its members to facilitate international co-operation in order to improve methods and results of money laundering and terrorist investigations.

The following jurisdictions are members of EAG:

  • Belarus
  • China
  • Kazakhstan
  • Uzbekistan
  • Kyrgyzstan
  • Russian Federation
  • Tajikistan

The following jurisdictions are observers of EAG:

  • Georgia
  • Germany
  • France
  • Italy
  • Japan
  • Moldova
  • Turkey
  • Ukraine
  • United Kingdom
  • United States of America

The purpose of the Eastern and Southern Africa Anti-Money Laundering Group or ESAAMLG is to implement the recommendations of the FATF and to take and co-ordinate measures to combat money laundering and the financing of terrorism.

ESAAMLG members participate in self-assessment designed to evaluate their progress in implementing the recommendations of the FATF. The following jurisdictions are members of ESAAMLG:

  • Botswana
  • Kenya
  • Lesotho
  • Malawi
  • Mauritius
  • Mozambique
  • Namibia
  • Seychelles
  • South Africa
  • Swaziland
  • Tanzania
  • Uganda
  • Zambia
  • Zimbabwe

The following jurisdictions are observers of ESAAMLG:

  • United Kingdom
  • United States

The Intergovernmental Anti-Money Laundering Group in Africa (GIABA) was established on 10 December 1999. Members include amongst others Ghana, Nigeria, Senegal. It aims at protecting national economies and financial institutional systems against the dangers of the integration of the proceeds of crime and terrorist financing. Its objective is to find global solutions to the issues these illicit activities pose. The strategy of GIABA has been to improve and intensify measures designed to combat the proceeds of crime and to encourage co-operation amongst its members.

The following jurisdictions are members of GIABA:

  • Benin
  • Burkina Faso
  • Cape Verde
  • Côte d'Ivoire
  • Gambia
  • Ghana
  • Guinea Bissau
  • Guinea Conakry
  • Liberia
  • Mali
  • Niger
  • Nigeria
  • Senegal
  • Sierra Leone
  • Togo

3.5.3 Other International Organisations:

The Offshore Group of Banking Supervisors (OGBS) was established in response of growing concern in 1980 over the risk that the offshore financial institutions were not subject to sufficient supervision or subjected to adequate control and could therefore be easily susceptible to money launderers, and those wishing to provide collateral for terrorist projects. The OGBS objective, among others, is to promote the implementation of universal international standards of supervision for cross-border banking, money laundering and terrorist financing.

The following jurisdictions are members of OGBS:

  • Aruba
  • Bahamas
  • Barbados
  • Bermuda
  • British Virgin Islands
  • Cayman Islands
  • Guernsey
  • Isle of Man
  • Jersey
  • Labuan
  • Macau, China
  • Mauritius
  • Netherlands Antilles
  • Panama
  • Samoa
  • Vanuatu

The following jurisdictions are observers of OGBS:

  • Antigua-Barbuda
  • Cook Islands

3.6 The Egmont Group of Financial Intelligence Units

As the threat of money laundering and terrorist financing became more prominent over the past decade, individual jurisdictions have established specialised government authorities, referred to as Financial Intelligence Units. A Financial Intelligence Unit or FIU is defined as:

A central, national agency responsible for receiving (and as permitted, requesting), analyzing and disseminating to the competent authorities, disclosures of financial information:

  1. Concerning suspected proceeds of crime and potential financing of terrorism; or
  2. Required by national legislation or regulation, in order to combat money laundering and terrorism financing. [5]

The above definition does not require a particular territory to establish a specific separate organisation to deal with anti-money laundering and counter terrorist financing threats. On the contrary, pre-existing government entities can, and have in practice, been given the task of combating money laundering and terrorism financing. The main task of these respective FIUs is to develop systematic solutions to combat money laundering and terrorist financing. Typically they are law enforcement agencies which provide an avenue for information exchange.

The Egmont Group was established in 1995 as an informal collection of small FIUs to help facilitate co-operation. The aim of the Egmont Group is to encourage mutual co-operation and improve FIU interaction in international attempts to combat money laundering and terrorist financing amongst its members not only to strengthen positions of individual participating countries, but to also strengthen the global economic resistance. At the time of writing [6] , since its inception, the number of member institutes has grown from fourteen to one-hundred-and-eight.

To meet its aim, the Egmont Group has developed several working groups, including Legal, Training and Communication, Outreach, Operational and Information Technology. The working groups are designed to seek and rectify hindrances in international anti-money laundering and counter terrorist financing methods. For example, the Legal Working Group is responsible for examining obstacles related to information sharing amongst government agencies, whilst the Outreach Working Group facilitates and develops the global network of FIUs.

_________________________
  1. S/Res/1617 (2005): Threats to international peace and security caused by terrorist acts, United Nations Security Council, 5244th meeting, on 29 July 2005;
  2. Scott-Joynt, J, “Cash couriers reveal terror fund challenge”, (Wednesday 12 May 2004);
  3. November 2008;
  4. Muller, W.H, Kälin, C.H & Goldsworth, J.G, Anti-Money Laundering: International Law and Practice, (1st ed., 2007, John Wiley & Sons Publishing) at page 87;
  5. November 2008.

 

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