What is the FATF?

The Financial Action Task Force is an organization that prevents the global crime of money laundering and terrorist financing. This institution, agreed by the governments, sets rules to prevent illegal activities and the damage they cause. Also, they make legal regulations in these areas. 

More than 200 countries are implementing these practices. FATF has established global standards to prevent various crimes such as money laundering, corruption, and terrorism financing. It creates regulations to prevent money laundering from drug trafficking and human trafficking.  

It is constantly updating its money laundering and terrorist financing regulations, and it is continuously making regulations and revising against cryptocurrencies.

What Does FATF Do? 

It is an intergovernmental organization that was established in 1989 by the G7 countries. Its primary objective is to combat money laundering and terrorist financing by developing and promoting global policies and standards. The FATF sets international standards and best practices for anti-money laundering (AML) and counter-terrorist financing (CTF) policies and regulations.

Since its inception, the FATF has expanded its mandate to include new and emerging threats to the global financial system. In 2001, the organization added the financing of terrorism to its agenda, recognizing that terrorist organizations also require funding to carry out their activities. In 2012, the FATF began working to prevent the proliferation of weapons of mass destruction, recognizing that the financing of such weapons can have devastating consequences.

One of the key roles of the FATF is to assess whether countries are implementing the necessary measures to combat money laundering and terrorist financing. The FATF conducts mutual evaluations of countries' AML/CFT regimes, which involve assessing whether the country's laws, regulations, and procedures meet international standards. The organization also provides guidance to countries on how to strengthen their AML/CFT regimes, and it works with countries to address deficiencies identified in mutual evaluations.

The FATF has 39 member countries, including the United States, Canada, the United Kingdom, France, Germany, and Japan. In addition to its member countries, the FATF also works with a number of international organizations, including the United Nations, the World Bank, and the International Monetary Fund. The FATF's recommendations and guidelines are widely recognized and are used by countries and financial institutions around the world to develop and implement AML/CFT policies and procedures.

FATF Recommendations 

FATF Recommendations are a comprehensive and consistent framework of measures that countries should implement to combat AML/CFT. The Recommendations provide an international standard for countries to follow, with measures that can be adapted to their specific circumstances due to diverse legal, administrative, and operational frameworks, as well as different financial systems.

The FATF Recommendations cover essential measures that countries should have in place, including identifying risks and developing policies, pursuing money laundering, terrorist financing, and proliferation financing, applying preventive measures for the financial sector and other designated sectors, establishing powers and responsibilities for competent authorities, enhancing transparency and availability of beneficial ownership information, and facilitating international cooperation.

A risk-based approach guide to virtual assets and VASPs

The original FATF Forty Recommendations were developed in 1990 to address the misuse of financial systems by people laundering drug money. The Recommendations were revised in 1996 to broaden their scope beyond drug-money laundering and reflect evolving trends and techniques. In 2001, the FATF expanded its mandate to include the funding of terrorist acts and organizations, creating the Eight (later expanded to Nine) Special Recommendations on Terrorist Financing. The Recommendations were revised a second time in 2003 and have been endorsed by over 180 countries, becoming the international standard for AML/CFT.

The FATF Recommendations have been reviewed and updated to address new and emerging threats and to clarify and strengthen existing obligations while maintaining necessary stability and rigor. The FATF Standards also revised to strengthen requirements for higher risk conditions where high risks remain or implementation could be enhanced.

The risk-based approach of the FATF Recommendations allows countries to adopt a more flexible set of measures within the framework of the Recommendations to target their resources effectively and apply preventive measures that are commensurate with the nature of the risks.

The Recommendations include specific measures to combat terrorist financing, which are integrated throughout the Recommendations, along with some unique Recommendations in Section C. These include criminalization of terrorist financing, targeted financial sanctions related to terrorism and terrorist financing, and measures to prevent the misuse of non-profit organizations.

The financing of the proliferation of  mass destruction weapons is also a security concern. The FATF's mandate was expanded in 2008 to include dealing with the financing of proliferation of weapons of mass destruction, and a new Recommendation (Recommendation 7) was adopted to ensure consistent and effective implementation of targeted financial sanctions when called for by the UN Security Council.

Compliance is assessed rigorously through Mutual Evaluation processes and the assessment processes of the International Monetary Fund and the World Bank, based on the FATF's common assessment methodology.

The FATF produces Guidance, Best Practice Papers, and other advice to assist countries with implementing the FATF standards. While these other documents are not mandatory for assessing compliance with the Standards, countries may find them valuable for guidance when considering how best to implement the Recommendations. A list of current FATF Guidance and Best Practice Papers is available on the FATF website.

Member countries have to comply with the globally published FATF Recommendations for AML/CTF.

FATF Greylist and Blacklist

FATF as part of its efforts, maintains two types of lists - the greylist and the blacklist.

The FATF greylist is officially known as the "Jurisdictions under Increased Monitoring" list. It identifies countries that have deficiencies in their AML/CTF systems, but which have committed to working with the FATF to address these deficiencies. Being on the greylist can have significant economic consequences, as it can lead to increased scrutiny from regulators, financial institutions, and international organizations, which can in turn make it harder for countries to attract investment and conduct international transactions.

The FATF blacklist, also known as the "Non-Cooperative Countries or Territories" list, is a list of countries that are deemed to be non-cooperative in the fight against money laundering and terrorist financing. These countries either have inadequate AML/CTF systems or are unwilling to work with the FATF to address identified deficiencies. Being on the FATF blacklist can result in severe economic sanctions, such as restrictions on international financial transactions and decreased access to foreign aid and investment.

Comply with FATF Regulations with Sanction Scanner

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