Brief introduction of FATF
The Financial Action Task Force (FATF) is an intergovernmental organization that develops and promotes policies to combat money laundering and terrorist financing. It was established in 1989 by the G7 countries and has since grown to include 37 member jurisdictions and 2 regional organizations. The FATF is headquartered in Paris, France.
How does FATF operate?
One of the primary ways in which the FATF combats financial crimes is through the development and promotion of international standards for combating money laundering and terrorist financing. These standards, known as the "FATF Recommendations," provide a framework for countries to adopt laws, regulations, and other measures to prevent, detect, and prosecute these crimes. The Recommendations are periodically updated to take into account new developments and emerging threats.
In addition to developing standards, the FATF also conducts assessments of countries' compliance with these standards. These assessments are carried out through a process known as the "FATF Mutual Evaluation." During a Mutual Evaluation, a team of experts from other FATF member jurisdictions reviews a country's laws, regulations, and other measures to determine whether they are consistent with the FATF Recommendations. The team also assesses the effectiveness of these measures in practice, and makes recommendations for improvement where necessary.
Tools of FATF
The FATF also has a number of tools at its disposal to encourage countries to adopt and implement the FATF Recommendations. One such tool is the "FATF Public Statement." When the FATF determines that a country is not taking sufficient action to combat financial crimes, it can issue a Public Statement calling on the country to take specific actions to address the deficiencies.
The FATF can also take more drastic action if a country fails to address its deficiencies. This can include the imposition of "countermeasures," which are measures that other countries can take to restrict their financial and economic relationships with the non-compliant country. The FATF can also place the country on its "blacklist" or "grey list," which can have significant reputational and economic consequences.
FATF implementing KYC
The FATF Recommendations require countries to establish effective AML/CFT (anti-money laundering/combating the financing of terrorism) systems, including measures to ensure that financial institutions and other regulated entities have implemented appropriate KYC procedures. These procedures should be risk-based and take into account the risks posed by different types of customers, products, and services.
Additionally to verify a customer's identity, KYC procedures may also involve reviewing a customer's financial history and assessing their potential risk for money laundering or financing terrorism. This may involve gathering information about a customer's business, their source of funds, and their intended use of financial products and services. Financial institutions and other regulated entities may also be required to conduct ongoing monitoring of their customers to identify any suspicious activity.
FATF in action against defaulters
Pakistan
In February 2021, the FATF placed Pakistan on its "gray list" of countries that are not fully compliant with its standards for combating money laundering and terrorist financing. This was due to concerns about the country's failure to effectively implement measures to address these issues.
Turkey
In June 2021, the FATF identified Turkey as a jurisdiction with strategic deficiencies in its anti-money laundering and counter-terrorist financing (AML/CFT) regime. The FATF called on Turkey to address these deficiencies and make significant improvements in its AML/CFT framework.
Iran
In October 2021, the FATF called on Iran to address deficiencies in its AML/CFT framework and implement a plan of action to address these issues. The FATF warned that if Iran failed to address these deficiencies, it could be placed on the FATF's list of non-cooperative jurisdictions.
Action against Cryptocurrency’s risks
In December 2021, the FATF expressed concern about the risks posed by the virtual asset (cryptocurrency) sector and called on countries to take action to address these risks. The FATF recommended that countries implement measures to prevent the use of virtual assets for money laundering and terrorist financing.
Other linked Regulatory Bodies
The United Nations (UN): The FATF is recognized as the global standard-setter for anti-money laundering and counter-terrorist financing (AML/CFT) measures. The UN has endorsed the FATF's standards and has called on all member states to implement them.
The Basel Committee on Banking Supervision:
The Basel Committee is a forum for global banking supervisors that develops guidelines and supervisory standards for the banking sector. The FATF and the Basel Committee have worked together to develop guidance on AML/CFT risks in the banking sector.
The World Bank and International Monetary Fund (IMF):
The FATF and the World Bank and IMF have a memorandum of understanding (MOU) that allows for the sharing of information and cooperation in the areas of AML/CFT and financial sector supervision.
The Egmont Group:
The Egmont Group is an international organization of financial intelligence units (FIUs) that facilitates the exchange of financial intelligence and promotes cooperation in the fight against money laundering and terrorist financing. The FATF and the Egmont Group work closely together to promote the effective use of FIUs in the fight against these crimes.
The World Customs Organization:
The World Customs Organization is an intergovernmental organization that promotes cooperation among customs authorities around the world. The FATF and the World Customs Organization have an MOU that allows for the sharing of information and cooperation in the areas of AML/CFT and customs-related matters.
Apparent Future Plans
As per statistics. In the coming times, the whole world might shift to e-money and the need of organizations like FATF shall rise. This is due to the increased threat of terrorist funding & other financial crimes. To stop this FATF alongside other organizations is committed towards bringing the defaulters to justice.
