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. Financial Action Task Force 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 the Financial Action Task Force 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 Financial Action Task Force 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's 40 Recommendations
FATF Recommendations are a comprehensive and consistent framework of measures that countries should implement to combat AML/CFT. The Financial Action Task Force's 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.
| FATF Recommendation | Overview |
|---|---|
| Recommendation 1: Risk-Based Approach | Countries are advised to adopt a risk-based approach to AML/CFT, directing entities to assess and respond to money laundering and terrorism financing risks. This foundation of an effective AML/CFT regime is scalable, with higher-risk situations requiring robust compliance measures. |
| Recommendations 6/7/35: Sanctions | To comply with UN resolutions, member states should impose targeted financial sanctions against entities posing terrorism financing risks. Sanctions lists aid financial institutions in assessing clients, including politically exposed persons. |
| Recommendation 10: CDD | Ensure financial institutions establish due diligence procedures, preventing anonymous or fictitious accounts. Ongoing measures help verify customer identities, identify beneficial owners, and clarify business relationships. |
| Recommendation 12: PEPs | Implement AML/CFT measures for foreign PEPs, applying a risk-based approach, ongoing monitoring, and senior management approval for relationships involving PEPs and their associates. |
| Recommendation 15: Virtual Assets | Recommendation 15 focuses on virtual assets, urging a risk-based approach to cryptocurrency compliance. It recommends regulating VASPs, licensing, and ensuring standard AML/CFT obligations. |
| Recommendation 16: Travel Rule | Known as the Travel Rule, Recommendation 16 mandates collecting information from originators and beneficiaries in wire transfers. Expanded in 2019 to cover VASPs, it now includes new cryptocurrency products and services. |
| Recommendation 19: Higher-Risk Countries | Countries at higher risk should prompt financial institutions to apply enhanced due diligence measures when engaging with entities in these areas. Restrictions on new branches and business relationships are recommended. |
| Recommendation 20: Reporting of Suspicious Transactions | Financial institutions must promptly report suspicious transactions involving funds from criminal activities or terrorism financing. Reporting is mandatory, regardless of transaction amount or success. |
| Recommendation 24: Beneficial Ownership | Identify legal ownership to curb money laundering. Recent changes mandate updated records and a public register. DNFBPs, including casinos, must comply with strict regulations to prevent criminal ownership, addressing global AML concerns. |
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.
The original FATF 40 Recommendations were developed in 1990 to address the misuse of financial systems by people laundering drug money. The 40 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 were 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.
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 Financial Action Task Force 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 FATF blacklist countries 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
Sanction Scanner is a technology-based company that offers innovative AML compliance solutions to financial institutions worldwide. Sanction Scanner provides end-to-end features to ensure that financial institutions comply with FATF regulations and other AML regulations.
Sanction Scanner's AI-powered AML solutions make compliance easy and painless for businesses. The platform provides comprehensive features such as sanctions screening, PEP screening, adverse media screening, transaction monitoring, and case management. These features enable businesses to automate the process of AML compliance and ensure that they comply with regulatory requirements.
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