After an impressive year for FATF, under the US Presidency, which signed off last month, and concluded with the Florida Plenary, the Chinese Presidency now has the lead and has already signalled both an intention to continue with important existing FATF priorities, but are also signalling the next year will include something different, by including the illegal wildlife trade as an additional new priority.
The FATF announcement is significant, bearing in mind the importance China plays in the illegal wildlife trade as a major destination country for all manner of endangered animals, but this is not just about China, which had taken significant action over the last few years, including banning ivory, but about the entire FATF membership and all Countries subject to implementing FATF standards.
In February 2019, FATF issued its proposed recommendations for AML governance of the crypto industry. Under pressure from the international community, the FATF aimed to bring amendments to Recommendation 15 (New Technologies) into force at the June 2019 plenary. Within the proposals, one point was opened for consultation; colloquially known as 7(b) the proposal seeks to introduce wire transfer recommendations required of the traditional banking sector into the crypto industry. That is, originator and beneficiary information is collected, screened and transmitted between correspondent institutions with the objective to prevent criminals and terrorists having unfettered access to the financial system.
The crypto industry responded but not for the reason many thought; the response was not to fight against regulation or kick the can down the road for another day but to make sure that the regulation could be effective.
Virtual Currencies (VC) have come a long way in the 10 years since Bitcoin first emerged, born out of the financial crises and now a decade later they are considered part of the financial landscape. With more than 1,000 VC’s to choose from, tens of millions of customers use VC whether as a store of value, unit of account and/or as a payment medium. As with any currency, there are those minorities that use it to further illicit acts. Criminals have recognised that VC has unique properties that could potentially serve their interests in laundering illicit funds and evading law enforcement. Users of VC employ pseudonyms rather than names, funds can be transferred without intermediaries and across international borders as easily as sending email.
Having attended the FATF Consultative Forum on the 6-7th May, 2019, I was invited to present on “the latest trends / priorities in the Public and Private Sectors on AMLCTF.” Here is a brief summary of my presentation, which is based on work progressed within the Wolfsberg Group.
Modernising the Fight against Financial Crime
As we seek to modernise the fight against financial crime, we need to put “effectiveness” ever more at the centre of what we do. For FI’s technical compliance assessments are extremely challenging but also fail to measure contribution or effectiveness. In order to support improved effectiveness the areas that need additional attention include (see chart below):
Whilst there is no silver bullet, real progress is dependent upon a common understanding of what outcomes we want to achieve and what then should be the priorities. Continue reading
It has already been reported in FATF Country Evaluation Results – Part 1 that over 70 Countries were assessed based on published FATF Reports and highlights published relating to technical compliance with the FATF 40 Recommendations as well as on effectiveness based on 11 so called “immediate outcomes,” based on a simple scoring model.
Since then new reports have been issued on Finland and China, and updated reports on Italy and Norway that have re rated their technical compliance scores. Notwithstanding these new results the overall scores now based on 75 assessed Countries remain the same being an average of 64% for Technical Compliance and 31% for effectiveness.
According to FATF, “The extent to which a country implements the technical requirements…..of
|global 2012 GDP or the size of the World Ec0nomy ||US$70 trillion|
|total assets under management managed by top 500 FIs ||US$62 trillion|
|Wolfsberg Group member banks total assets combined amounting to around a quarter of the total assets held by the World’s top 1,000 Banks ||US$20.8 trillion|
|GDP or the size of the world’s biggest economy, US||US$14.9 trillion|
|total value of assets held on deposit in Banks||US$11 trillion|
|tax fraud and tax evasion losses||US$4.75 trillion|
|total value of banknotes and coin in circulation ||US$4.2 trillion|
|average daily turnover of FX transactions ||US$3.9 trillion|
|total assets under management managed by Blackrock, the largest financial asset management firm||US$3.3 trillion|
|total amount of fraud proceeds ||US$2.75 trillion
|total amount invested in Hedge Funds globally||US$2.3|
On 12th April, 2019, Ministers agreed an open ended mandate for the FATF, marking its 30 year anniversary. The indefinite extension which takes effect in 2020, recognises the need for FATF to continue to lead decisive, co-ordinated and effective global action to counter the threats of the abuse of the financial system by criminals and terrorists, and strengthens its capacity to respond to these threats, and will increase the number of Ministerial meetings as well as doubling the length of the Presidency and the Vice Presidency from 1 to 2 years. Ministers separately outlined the group’s priorities for the next 4 years which included the completion of its latest round of mutual evaluation reports and its efforts to address “new and emerging threats” related to digital ID, virtual currency and other technological innovations. Continue reading
&With results on more than 70 Countries published and updated relating to technical compliance with the FATF 40 Recommendations as well as on effectiveness based on 11 so called “immediate outcomes,” some interesting findings emerge. (Based on a simple scoring model (3,2,1 & 0 for each Recommendation and Objective).
According to FATF, “The extent to which a country implements the technical requirements…..of each of the  recommendations is important….but this is not sufficient” as “each country must enforce those measures and ensure that the operational law-enforcement and legal components of an AML/CFT System works together effectively …to deliver results.” With that in mind here are some observations.
- whilst FATF do not publicly aggregate results, and no longer identify Recommendations as more important than others, it is likely, not least in the listing of Countries with material discrepancies that some are indeed more important.
In February, 2019 the EU Commission published a list of 23 Countries, which it believes have strategic deficiencies in their AML/CTF regimes and as such warns EU based Banks dealing with FI’s or customers from these Countries.
The newly named Countries were Saudi Arabia plus Panama, Nigeria, Libya, Botswana, Ghana, Samoa, the Bahamas and the 4 US territories of American Samoa, US Virgin Is, Puerto Rico and Guam. From the existing list of 16 Countries, Iran, Iraq, Syria, Afghanistan, N Korea, Ethiopia, Pakistan, Sri Lanka, Trinidad & Tobago, Tunisia and Yemen – remain with Laos Uganda, Bosnia, Guyana and Vanuatu being removed.
The EU list goes further than the FATF list but uses information from FATF mutual evaluations, including criteria that targets Countries that do not provide sufficient information on ownership of companies, or if their rules on reporting suspicious transactions or monitoring customers activities are limited. Continue reading
Countries where FATF has called for counter measures remains unchanged with both North Korea and Iran still listed. That said counter measures on Iran had been suspended and that suspension was continued but only for a short period.. FATF made clear that, “if by June 2019, Iran does not enact the remaining legislation in line with FATF Standards, then the FATF will require increased supervisory examination for branches and subsidiaries of financial institutions based in Iran. The FATF also expects Iran to continue to progress with enabling regulations and other amendments.”
Notwithstanding the continued suspension of “counter measures” FATF remains “concerned with the terrorist financing risk emanating from Iran and the threat this poses to the international financial system” and FATF calls on its members “and urges all jurisdictions to continue to advise their financial institutions to apply enhanced due diligence with respect to business relationships and transactions with natural and legal persons from Iran, consistent with FATF Recommendation 19, including: (1) obtaining information on the reasons for intended transactions; and (2) conducting enhanced monitoring of business relationships, by increasing the number and timing of controls applied, and selecting patterns of transactions that need further examination.” Continue reading