Financial Action Task Force:

Fighting Money Laundering and Terrorist Financing

The Financial Action Task Force (FATF) is a Paris-based, inter-governmental body which aims to spread the anti-money laundering message all over the world.  It is a "policy-making body" which works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas.

The FATF initially published 40 recommendations and then later, another 8 recommendations to combat money laundering and the financing of terrorism. It monitors the implementation of its anti-money laundering recommendations and reviews money laundering trends and countermeasures.

The FATF 40 Recommendations

The original Forty Recommendations are split into 4 sections:

A. General legal framework

B. Measures to be taken in combating money laundering and terrorist financing

C. Institutional measures in combating money laundering and terrorist financing

D. International co-operation

Section A: General Legal Framework

Recommendation 1 (R1): Countries should “take immediate steps to ratify and implement” the 1988 UN Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, known as the Vienna Convention.

R2-R3: Advocates that laws relating to financial secrecy should not impede the implementation of the FATF recommendations.  Effective programmes should be in place to deal with money laundering and incorporate increased multilateral co-operation and mutual legal assistance, including prosecutions and extradition where appropriate.

Section B: Measures to be taken in combating money laundering and terrorist financing

R4: Deals with the scope of the criminal offence of money laundering.  Countries should ensure that financial institution secrecy laws do not inhibit implementation of the FATF Recommendations.

R5: Introduces the concept of Customer Due Diligence (CDD) measures.  Financial institutions should not keep anonymous accounts or accounts in obviously fictitious names. 

R6: For politically exposed persons, institutions should have a risk management system in place to assess exposure and obtain senior management relationships for establishing business relationships.

R7: Deals with provisional measures including confiscation.

Section C: Institutional measures in combating money laundering and terrorist financing

Covers the application of the recommendations of to banks, non-bank financial institutions and non-financial institutions that undertake some financial activities.

R8-R9: Countries may decide that anti-money laundering measures may not need to be applied in some cases (e.g. when financial activity is carried out on an occasional or limited basis).

R10-R12: Customer Identification: financial institutions should not keep anonymous accounts or accounts under obviously fictitious names; they should be required to reveal the identity of a client to “domestic competent authorities” in the event of a criminal investigation; where necessary, they should verify the identity of the customer. Records on transactions should be kept for at least five years and records on the identity of a customer should be kept for at least five years after the account is closed.

R13: Organisation should pay special attention to the possibility of new technologies aiding anonymity.

R16-R17: Protects the financial institutions from prosecution in the event they pass information about transactions or clients to the authorities without informing the clients. They protect the financial institution even if there is no criminal activity revealed.

R19: Requires financial institutions to adopt anti-money laundering policies. Financial institutions must be on the lookout for strange financial activity, which they should investigate. If criminal activity is involved, they should be required to report it by law.

R21-R22: Financial institutions with subsidiaries in countries that do not fully apply these recommendations should ensure that their subsidiaries apply them and should be especially vigilant with regard to financial transactions with persons or organisations in these countries.

Other Measures include monitoring cross-border movement of cash; reporting currency transactions above a certain amount to a national central agency; encouraging the general development of non-cash forms of payment in society in general; vigilance and special legal provisions if necessary with regard to shell corporations.

R23-R25: Authorities need to ensure that proper anti-money laundering policies are in place in financial institutions; they need to ensure their effective implementation and to issue general guidelines which also act as an educational tool; they should prevent criminals or their confederates taking control of, or acquiring significant participation in, financial institutions. Designated non-financial businesses and professions should be subject to regulatory and supervisory measures

R26-R27: Countries should establish a Financial Intelligence Unit (FIU) that serves as a national centre for the receiving (and, as permitted, requesting), analysis and dissemination of Suspicious Transactions Reports (STR) and other information and law enforcement authorities have responsibility for money laundering and terrorist financing investigations

R28-R30: Regulators should be able to obtain documents and information for use in those investigations, and in prosecutions and related actions. Regulators should have adequate powers to monitor and ensure compliance and adequate financial, human and technical resources.

R31-R32: Law enforcement agencies and supervisors should have effective mechanisms in place which enable them to co-operate, maintain comprehensive statistics on matters relevant to the effectiveness and efficiency of such systems.

R33-R34: Countries should take measures to prevent the unlawful use of legal arrangements by money launderers take measures to prevent the unlawful use of legal persons by money launderers.

Section D: Strengthening of International Co-operation

These recommendations deal with exchange of general information and of information relating to suspicious activities; the basis and means for co-operation in confiscation, mutual assistance and extradition, and improved mutual assistance on money laundering issues.

R35-R40: Countries should rapidly, constructively and effectively provide the widest possible range of mutual legal assistance in relation to money laundering and terrorist financing investigations, prosecutions, and related proceedings. They should take expeditious action in response to requests by foreign countries to identify, freeze, seize and confiscate property laundered, proceeds from money laundering or predicate offences.  Where appropriate, countries should recognise money laundering as an extraditable offence.

The FATF 8 Recommendations - Special Recommendations on Terrorist Financing

These recommendations are designed to be combined with the existing Forty Recommendations. They were adopted 31stOctober 2001:

R1. Ratification and Implementation of UN instruments, especially the 1999 United Nations International Convention for the Suppression of the Financing of Terrorism and the United Nations Security Council Resolution 1373.

R2. Criminalising the financing of terrorism and associated money laundering.

R3. Freezing and confiscating terrorist assets, in accord with UN resolutions.

R4. Reporting suspicious transactions related to terrorism.

R5. International co-operation, on the basis of treaties or other measures, including taking measures to ensure that no “safe haven” is provided for individuals facing charges for terrorism.

R6. Alternative remittance: all persons or legal entities involved in transfer of money or other valuables must be licensed or registered and covered by FATF recommendations, otherwise they should be liable to administrative, civil or criminal sanctions.

R7. Wire transfers: clear information about the source should be required, with especial vigilance for any transfer where originator information is not complete.

R8. Non-profit organisations: laws governing them should be reviewed so that they are not able to pose as a front for terrorist activities.

Conclusion

As an organisation, FATF provides a framework for governments to follow.  But ultimately, it is up to each country to implement an anti-money laundering framework that works best within its own legal framework