Global money laundering and terrorist financing watchdog, the Financial Action Task Force (FATF), held its first of three annual plenary sessions in Paris this February 2023. It was the second to be held under the presidency of T. Raja Kumar and brought together delegates from over 200 global jurisdictions to discuss and address the world’s pressing financial crime issues.
Executive summary of plenary takeaways
- FATF has suspended the Russian Federation’s membership in response to the country’s continued war on Ukraine
- Steps taken to improve beneficial ownership transparency to prevent illicit financial activity from hiding behind corporate structures
- Members further agreed on a crypto asset standards action plan
- Ransomware financial flow disruption report approved
- New projects to combat cyber fraud and terrorist financing via crowdfunding
- Indonesia takes further steps towards full FATF membership while Qatar also shows promising performance against financial crime
- Morocco and Cambodia lifted from FATF increased monitoring
FATF suspends Russia’s membership
The FATF highlighted that one year on from the Russian invasion of Ukraine, it extends its deepest sympathies to the Ukrainian people “for the needless loss of life and destruction of Ukrainian infrastructure and society”. The financial watchdog also underlined that Russian aggression in Ukraine violates the FATF’s “principles of promoting security, safety and the integrity of the global financial system and the commitment to international cooperation and mutual respect”. As a result, the FATF has decided to suspend the Russian Federation’s FATF membership.
Compliance with the FATF Standards
Mutual Evaluations of Indonesia and Qatar
Indonesia
The FATF’s mutual evaluation concluded that “Indonesia has a strong legal, regulatory and institutional framework, resulting in robust technical compliance in a number of areas” and is generally pleased with the country’s progress in the context of its FATF membership application.
Indonesia’s anti-money laundering progress is also positive, although the FATF has pinpointed the need to pursue larger money launderers. The country is also recommended to “improve risk-based supervision of designated non-financial businesses and professions and use effective and dissuasive sanctions in both the financial and non-financial sectors for non-compliance with preventive measures”.
Qatar
The gulf state has made a series of improvements in its anti-money laundering and countering the financing of terrorism regime (AML/CFT). The plenary noted that Qatar’s technical compliance with the FATF is “very strong”. The country has also taken important steps to “develop a stronger national understanding of money laundering and terrorist financing risks, confiscate criminal assets, supervise the financial and non-financial sector and implement targeted financial sanctions for terrorism financing”.
The FATF highlights the following areas for improvement: Qatar’s law enforcement response to money laundering and terrorist financing, its use of financial intelligence, access to information on beneficial ownership, and implementation of targeted financial sanctions.
High-risk and other monitored jurisdictions
South Africa and Nigeria under increased monitoring
The purpose of increased monitoring is for the FATF to collaborate with the countries subject to it in order to identify and improve deficiencies in their AML/CFT regime. South Africa and Nigeria have agreed to be subjected to the increased monitoring initiative to make improvements as quickly as possible.
Morocco and Cambodia no longer subject to increased monitoring
The FATF have resolved that Morocco and Cambodia have made the requisite AML/CFT regime improvements within the agreed-to timeframes that further FATF monitoring is no longer necessary. However, both countries will continue to work with the FATF’s corresponding FSRB regional bodies to make further enhancements.
Strategic Initiatives
It is now an FATF priority to increase beneficial ownership transparency for the prevention of criminals and sanction evaders from hiding illicit financial activity behind opaque corporate structures, including anonymous shell companies.
Beneficial Ownership of legal persons and legal arrangements
The FATF has now built on its March 2022 agreement to enforce requirements for countries to know the true identity of company owners. It has now taken this one step further by requiring a country to have beneficial company ownership held by a public body, a beneficial ownership registry body, or through an alternative means, as long as they have appropriate access to beneficial ownership information, as part of its Recommendation 24.
This recommendation also covers measures to mitigate the risk that money laundering or terrorist financing through a foreign company may pose to a country. Ultimately, it is also designed to reduce the effectiveness of using shell companies to harbour money laundering or terrorist financing activity.
With regard to legal arrangements, the FATF has reached agreement on a set of measures to bring Recommendation 25 more in line with Recommendation 24, for closer alignment between beneficial ownership of legal persons and of legal arrangements.
Taking action against ransomware financial flows and crypt asset fraud
In response to the massive increase in global ransomware attacks in recent years against individuals, companies, and government entities, the FATF recently carried out extensive research into how to counter it. Among its findings are that ransomware criminals are able to exploit easy access to crypto asset service providers and take advantage of weak or non-existent AML/CFT regimes across the world. The FATF highlights the pressing need for jurisdictions to markedly increase collaboration and cooperation. It also notes the need to develop improved capabilities and tools to trace suspicious activity and recover virtual assets.
The plenary also addressed global failures to tackle financial crime that takes advantage of ease of access to crypto service providers, and of the ability to easily evade detection via crypto channels. Thus, the plenary saw the agreement of a roadmap for improved implementation of FATF crypto asset standards. In the first half of 2024, the FATF will issue an analysis of each FATF member’s progress on crypto service provider regulation and supervision.
For full details of the FATF Plenary, 22-24 February 2023, click here.
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