Last month, the Financial Action Task Force (FATF) convened in Paris to further develop and implement global controls against financial crime.
Since the establishment of the FATF more than two decades ago, it has been recognized as the international standard setting body on anti-money laundering (AML) and combating the financing of terrorism (CFT). With a belief that a transparent financial system deters corruption, enhances rule of law, supports economic development and contributes to a stable economy, the FATF has established standards that assist countries in prescribing specific safeguards covering legal, supervisory, and enforcement requirements.
The FATF is unique among the scores of global governance bodies, in that it has largely been successful in pushing countries forward to comply with its standards through a combination of a peer review process, and strong multilateral action (the most severe of which is FATF blacklisting). More than 180 countries have endorsed the standards set out by the FATF, but the practical success of the FATF lies within the mechanism it has developed to enforce and ensure implementation of the FATF standards by its members and those countries that have made political commitments to do so.
The Office of Terrorist Financing and Financial Crimes (TFFC) in the Treasury Department, which marked its 10th anniversary earlier this month, leads the U.S. interagency delegation to the FATF, actively advancing the FATF’s global efforts in combating money laundering, terrorist financing and other illicit financing threats that pose a risk to the integrity of the international financial system. In practical terms, the importance of the FATF lies in its objective to create a level financial playing field that prevents illicit financiers from exploiting a jurisdiction with lax AML/CFT measures, thereby undermining the efforts of other jurisdictions that have strong controls.
Consequently, the role of the FATF through its 36 members and network of associate members is to promote the implementation of the standards and when jurisdictions fail to take adequate action, to prompt for strong compliance through a system that includes publicly identifying the countries and their AML/CFT weaknesses.
The G20 has consistently stressed the importance of the FATF and reinforced this support in the latest G20 statement which called for ongoing support for the FATF to publicly identify and monitor jurisdictions that pose a significant risk of money laundering and terrorist financing. The FATF currently has identified more than 40 countries around the world for strategic AML/CFT deficiencies. As a result many countries have taken steps in improving their AML/CFT regimes. Ghana and Venezuela are the most recent examples of countries that have engaged closely with the FATF, taking the necessary measures to address their technical AML/CFT deficiencies. Consequently, during the February Plenary meeting, the FATF decided unanimously to remove them from the FATF listing process.
There were additional positive results with the FATF recommending that Bolivia and four countries in the Asia Pacific region, Brunei Darussalam, Thailand, the Philippines and Sri Lanka, exit the review process by the next FATF meeting in June 2013. These countries largely addressed their AML/CFT strategic deficiencies by passing major legislation to significantly improve their legal frameworks. Moreover, the FATF welcomed the important progress of Turkey for enacting long awaited CFT legislation that addresses a number of shortcomings. The FATF will continue to systematically review high-risk jurisdictions that pose a threat to the international financial system and work with them to reach an acceptable level of compliance.
Another key outcome from the February Plenary was agreement on a methodology that sets out a roadmap for determining both a country’s technical compliance with the FATF Recommendations and how effectively the country is implementing the standards in practice. The methodology is the basis for the peer review process, which is fundamental to the success of the FATF’s ability to monitor countries and their level of compliance. For those with a low level of compliance with the FATF standards, the FATF has procedures to monitor reforms.
The U.S. has been a strong supporter of the FATF looking beyond technical compliance of the standards in the peer review process to the effectiveness of implementation. Effective implementation requires supervision of financial institutions, and both civil and criminal enforcement of AML/CFT laws. The U.S. enforcement of its AML/CFT laws has resulted in foreign as well as domestic financial institutions being the subject of legal action. At the February Plenary the FATF acknowledged the challenges of financial institution AML/CFT compliance and the need for countries to improve implementation of their enforcement efforts, which will be FATF’s focus in the next round of peer reviews.
With the noteworthy outcomes from the February FATF Plenary and the successful completion of the comprehensive FATF methodology, the FATF is poised for the next phase of its work in conducting assessments (beginning in 2014 and including the U.S. in 2015). To this end, the FATF is in a stronger position to remain at the forefront in the international effort to combat the misuse of the international financial system and to build upon a process that has been successful in achieving concrete institutional changes in a number of monitored countries.
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