The Financial Action Task Force

The FATF was founded in Paris in 1989 on the initiative of the former G7. The FATF is meant to combat the misuse of financial systems for money laundering. In addition to combating money laundering and terrorist financing, the FATF is also shifting its focus towards current and new forms of financial and economic crime, including the risks related to cryptocurrency. The main tasks of the FATF include periodically reviewing FATF recommendations, improving compliance with FATF recommendations, identifying non-cooperative or high-risk countries, and following trends in criminal activity.

Review of recommendations

The FATF recommendations are the internationally widely accepted standards for combating money laundering and terrorist financing. Initially, the FATF's aim was to facilitate international cooperation in the fight against money laundering as a result of drug crime. The immediate emphasis was placed on a Customer Due Diligence policy and the appointment of a responsible individual for following Due Diligence protocol: the compliance officer. At the heart of the FATF's recommendations are:

• Adequate criminalization of money laundering and terrorist financing
• The assurance of good administration of KYC and CDD
• A whistleblower system for reporting unusual and suspicious transactions
• Supervision and enforcement of applicable laws and regulations
• International cooperation in the fight against money laundering and terrorist financing

Improving recommendations

To improve recommendations, the FATF uses two methods. The first method is a country check, during this audit a country is visited, and various points of its financial security measures are assessed. The countries are then tested against a list of standards and the conclusions of the audits are published. The FATF country list is based on this assessment.

This list includes countries with which the FATF is cooperating to improve the fight against money laundering and terrorist financing. Other countries should consider these countries as high-risk countries. The second method is a self-examination, carried out by the countries themselves. In this self-examination countries are asked to complete a questionnaire, which will provide insight into compliance with FATF recommendations by country.

Identification of high-risk countries

To identify countries which are not willing to cooperate, or high-risk countries, the FATF-recommendations are binding to evaluate their legislation and anti-laundering policies. Countries which do not cooperate with FATF investigations risk being classified as high-risk countries. At present, the following countries have been identified as high-risk countries which have made a written political commitment to address the identified shortcomings. Together with the FATF, an action plan has been developed for these countries: Afghanistan, Iraq, Syria, Uganda, Vanuatu, Yemen, Trinidad and Tobago and Pakistan.

Iran made a high-level political commitment in response to the FATF “Public Statement’’ (identified third-world countries with high risk level) to address the identified shortcomings and decided to request technical assistance for the implementation of a FATF action plan. The Democratic People’s Republic of Korea (DPRK) has been identified as a high risk with continued high risk of money laundering and terrorist financing, and it has repeatedly failed to address the identified shortcomings.

Following trends

The FATF’s final core task is to follow trends and techniques used in the field of money laundering and terrorist financing, and to publish directives to combat these. The FATF does this by analyzing the current practice of money laundering, to reveal trends, methods, and techniques used by criminals. 

Conclusion

The FATF is an internationally recognised institution with the aim of combating money laundering and terrorist financing. The FATF recommendations are a global standard for preventing money laundering and terrorist financing in order to protect the financial system from abuse by criminals, money launderers, and terrorists. Member countries must ensure that adequate anti-money laundering laws and regulations are introduced.

The FATF has a list of countries which do not yet comply with the standards regarding the existence and enforcement of adequate laws and regulations. Within this list, there is a distinction between countries which have indicated aversion to introducing these laws, and those which simply do not comply at the present. When a country has indicated its intention to improve on its shortcomings, the FATF works together with this country to ensure that proper laws and regulations are put in order.