Financial Action Task Force (FATF)

The Financial Action Task Force (FATF) is a global organization established in 1989 to set guidelines and develop policies aimed at countering money laundering, the financing of terrorism, and other financial crimes that threaten the security and stability of the financial system. It brings together governments and regulatory bodies from around the world to ensure that countries implement effective Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) measures.

The FATF operates by publishing a set of recommendations, which provide a framework for nations to design laws, policies, and operational structures to prevent illegal financial activities. Countries are then evaluated on their adherence to these recommendations, and FATF maintains a list of high-risk countries that are not compliant. The aim is to safeguard the global financial system by setting universally accepted standards for AML and CFT practices.

Explanation of FATF Recommendations

1. Recommendation 1 - Risk-Based Approach: Countries must identify and assess money laundering and terrorist financing risks, and apply effective measures to mitigate these risks proportionally.
2. Recommendation 2 - National Cooperation: Governments should ensure coordination between authorities to effectively combat money laundering and terrorist financing.
3. Recommendation 3 - Criminalization of Money Laundering: Money laundering should be made a criminal offense, and appropriate penalties should be established.
4. Recommendation 4 - Criminalization of Terrorist Financing: Terrorist financing should be a criminal offense, with penalties that are effective and dissuasive.
5. Recommendation 5 - Confiscation and Seizure of Assets: Countries should enable the confiscation of assets that are the proceeds of crime or are intended to finance terrorism.
6. Recommendation 6 - Customer Due Diligence (CDD): Financial institutions should identify customers and monitor their transactions to ensure they are consistent with their profile.
7. Recommendation 7 - Politically Exposed Persons (PEPs): Enhanced due diligence should be applied to customers who are PEPs to address higher risks of corruption or illegal activities.
8. Recommendation 8 - Non-Profit Organizations (NPOs): Measures should be taken to prevent non-profit organizations from being misused to finance terrorism.
9. Recommendation 9 - Supervision of Financial Institutions: Competent authorities should effectively supervise financial institutions to ensure compliance with AML/CFT regulations.
10. Recommendation 10 - Reporting Suspicious Transactions: Financial institutions must report suspicious transactions to authorities, contributing to the detection of illicit activities.
11. Recommendation 11 - Record-Keeping: Financial institutions should maintain detailed records of transactions and customer identities for a sufficient period to aid investigations.
12. Recommendation 12 - Designated Non-Financial Businesses and Professions (DNFBPs): Certain businesses and professionals (e.g., real estate agents) must comply with AML/CFT regulations.
13. Recommendation 13 - Correspondent Banking: Financial institutions must carry out enhanced due diligence when establishing correspondent banking relationships, especially with high-risk jurisdictions.
14. Recommendation 14 - Transparency of Legal Arrangements: Legal entities and arrangements should be transparent, enabling authorities to trace the beneficial owners behind them.
15. Recommendation 15 - New Technologies and Virtual Assets: AML/CFT measures should address the risks posed by new technologies like virtual currencies and digital assets.
16. Recommendation 16 - Wire Transfers: Financial institutions must ensure that wire transfers are accompanied by accurate and complete information about both the sender and recipient.
17. Recommendation 17 - Reliance on Third Parties: Financial institutions can rely on third parties to conduct customer due diligence but remain responsible for ensuring compliance.
18. Recommendation 18 - Internal Controls and Compliance: Financial institutions must establish effective internal controls, compliance programs, and training to detect and prevent money laundering.
19. Recommendation 19 - Enhanced Due Diligence (EDD): Higher-risk customers, transactions, and countries should be subject to enhanced due diligence procedures.
20. Recommendation 20 - Monitoring of Transactions: Financial institutions must monitor ongoing transactions to identify suspicious activity and ensure consistency with customer profiles.
21. Recommendation 21 - International Cooperation: Countries should cooperate internationally by exchanging information and coordinating efforts to combat money laundering and terrorist financing.
22. Recommendation 22 - Mutual Legal Assistance: Countries must establish frameworks for mutual legal assistance, allowing for the exchange of evidence and information in criminal matters.
23. Recommendation 23 - Sanctions and Penalties: Countries should implement effective sanctions and penalties for non-compliance with AML/CFT regulations.
24. Recommendation 24 - Transparency of Beneficial Ownership: Financial institutions must know the true beneficial owners behind legal entities and trusts, ensuring transparency in financial transactions.
25. Recommendation 25 - Data Protection: AML/CFT measures should respect personal data protections while still ensuring transparency to prevent misuse.
26. Recommendation 26 - Domestic Cooperation: Authorities and institutions should collaborate domestically to ensure AML/CFT measures are effective.
27. Recommendation 27 - International Cooperation in Law Enforcement: Countries should work together in the enforcement of laws related to money laundering and terrorist financing.
28. Recommendation 28 - Prosecution of Money Laundering and Terrorist Financing: Countries should effectively prosecute individuals and organizations involved in money laundering or terrorist financing.
29. Recommendation 29 - Financial Intelligence Units (FIUs): Each country should establish an FIU to receive, analyze, and disseminate financial intelligence related to suspicious transactions.
30. Recommendation 30 - Transparency of Legal Persons: Financial institutions must be able to identify and verify the legal structure and control of entities with which they engage.
31. Recommendation 31 - Suspicious Transaction Reporting (STR): Reporting suspicious transactions should be mandatory, with timely and secure methods for reporting such activities.
32. Recommendation 32 - Provisional Measures: Authorities should be able to take provisional measures such as freezing assets if they are related to money laundering or terrorist financing.
33. Recommendation 33 - Assistance to Other Countries: Countries should provide mutual legal assistance to foreign authorities investigating money laundering and terrorist financing.
34. Recommendation 34 - Prevention of Money Laundering and Terrorist Financing in the Real Estate Sector: The real estate sector must adopt strict controls to prevent being used for laundering money or financing terrorism.
35. Recommendation 35 - Sanctions for Terrorist Financing: Governments should have legal frameworks to impose sanctions and prevent terrorist financing effectively.
36. Recommendation 36 - International instruments: Casinos and other gambling businesses should be regulated to ensure that they do not become venues for money laundering or terrorist financing.
37. Recommendation 37 - Enhanced Customer Due Diligence in High-Risk Jurisdictions: Financial institutions should apply enhanced due diligence to customers and transactions from high-risk countries.
38. Recommendation 38 - AML Training and Awareness: Financial institutions must ensure staff are adequately trained in AML/CFT practices and have the resources to identify suspicious activities.
39. Recommendation 39 - Sanctions Against Terrorist Financing: Effective measures must be in place to ensure that sanctions imposed on individuals or organizations suspected of financing terrorism are fully enforced.
40. Recommendation 40 - Risk Assessment of Legal Entities: Financial institutions should undertake risk assessments to determine the potential for money laundering or terrorist financing in transactions involving legal entities.