Mercredi 21 Août 2019  

N°118 - Deuxième trimestre 2017

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Drugs, terrorism: almost 30 years fighting financial fraud

By Mr David LEWIS,
Executive Secretary of the Financial Action Task Force (FATF)

The Financial Action Task Force (FATF)* has come a long way since, in 1989, the G7 created the task force to develop a policy response to the growing concerns about the laundering of drug money. Nearly three decades later, the FATF’s mandate has significantly expanded its focus to address new and changing threats. Today, FATF coordinates global action through pooling knowledge, developing standards and evaluating countries, with the objective that financial systems and the broader economy are protected from the threats of money laundering and the financing of terrorism and proliferation, thereby strengthening financial sector integrity and contributing to safety and security. It assesses that countries implement these standards in a way that delivers results, and engages countries that fail to do so. 
The threat posed by terrorism remains one of the biggest concerns for governments and citizens worldwide and it has been a priority for the FATF which resulted in the adoption of a consolidated strategy to combat terrorist financing in February 2016. Through this strategy, the FATF is leading work globally to understand the risks countries face from terrorist financing and develop policy responses to all aspects of it. The strategy focuses on five distinct areas:
- Improve and update the understanding of terrorist financing risks, in particular the financing of ISIL/Da’esh
- Ensure that the FATF Standards provide up-to-date and effective tools to identify and disrupt terrorist financing activity
- Ensure countries are appropriately and effectively applying the tools, including UN Targeted Financial Sanctions, to identify and disrupt terrorist financing activity
- Identify and take measures in relation to any country with strategic deficiencies for terrorist financing
- Promote more effective domestic co-ordination and international co-operation to combat the financing of terrorism. 
FATF’s leading role in efforts to choke off terrorist financing has received support from the international community, including the G20 and G7, and was further strengthened by the adoption of United Nations Security Council Resolution 2253 which calls for a swift and effective implementation of the FATF Standards by all countries. 
In addition to the enhanced focus on terrorist financing, the FATF continues its work to protect the integrity of the financial system from other threats. 

Identifying money laundering and terrorist financing risks. 
As countries put in place safeguards to detect, prevent and punish abuse of the financial system, criminals and terrorists will continue to seek out alternative methods to launder the proceeds of crime, or methods to raise, move and use funds in support of terrorism. An in-depth understanding of such new and evolving threats is crucial to ensuring that measures to combat money laundering, terrorist financing and other misuse of the financial system remain relevant.  FATF has published an extensive body of reports that analyse the vulnerabilities of certain sectors or products. Examples of recent typologies reports include Terrorist financing in West and Central Africa, Money laundering through the physical transportation of cash, and Emerging terrorist financing risks and Money laundering and terrorist financing risks and vulnerabilities associated with gold. 
These reports raise awareness with authorities and the private sector. At the same time, the reports allow the FATF to determine whether the FATF needs to further clarify the implementation of relevant FATF Standards, or whether the standard itself needs to be refined to address the new threats to the financial system. 

Setting standards
The FATF Recommendations provide countries with the necessary legal, law enforcement and operational tools to protect the financial system from abuse.  FATF regularly strengthens and refines these standards to ensure that they continue to provide countries with the strongest tools. The last full revision of the FATF Recommendations took place in 2012, but since then, the FATF has continued to refine and clarify certain requirements in response to evolving threats as well as the results from the mutual evaluations conducted in the current cycle of assessments. 
In particular, the FATF strengthened its recommendation on the criminalisation of terrorist financing to ensure that countries criminalise the funding of travel for foreign terrorist fighters.
FATF also clarified its standard on non-profit organisations with extensive input from the non-profit sector. While some non-profit organisations are vulnerable to abuse for terrorist financing, countries should adopt risk-based measures which do not unnecessarily or disproportionally disrupt or discourage legitimate activities. 
The FATF issues guidance and best practices which clarify the effective implementation of some of the requirements of the FATF Recommendations. Recently, these included guidance on the criminalisation of terrorist financing which assists countries to fully implement the requirements of the FATF Recommendations and the UN Terrorist Financing Convention in the context of different legal traditions. Other examples include guidance on correspondent banking and guidance on transparency and beneficial ownership.

Evaluating implementation
FATF not only sets the standards, it also assesses how well countries are implementing them. Implementation is more than adopting a set of laws and regulations. They are of course important, but it is more important that they work effectively and deliver the expected results. 
Each country is unique, which is why a one-size-fits-all approach to mitigating threats to the financial system doesn’t work. The cornerstone of the effective implementation of the FATF Recommendations is a country’s understanding of the money laundering and terrorist financing risks that it is exposed to. This knowledge will allow a country to take the necessary measures in its own unique risk context. An indiscriminate tick-box approach can lead to derisking, excluding people or sectors such as non-profit organisations or money remitters from access to regulated financial products and driving them to seek unregulated alternatives which will increase the risk of illicit transactions.
FATF takes a two-pronged approach to assessing the implementation of the FATF Recommendations. It looks at whether a country has met the technical requirements of each of the 40 FATF Recommendations and it looks for evidence that demonstrates how well a country’s efforts are working in practice. The assessment team also provides the country with a set of targeted recommendations on how to address the weaknesses it has found.
The completion of an assessment is a starting point for a country to further strengthen its measures to protect the financial system. All assessed countries are placed into a rigorous follow-up process. This process aims to put pressure on a country to address the weaknesses in its measures to combat money laundering, terrorist financing, and other threats. Five years from the adoption of its mutual evaluation report, a country is subject to a follow-up assessment focused on the progress it has made on the priority actions in its mutual evaluation.

Identifying high-risk and non-cooperative jurisdictions
To protect the international financial system from abuse for money laundering, or the financing of terrorism or proliferation, the FATF publicly identifies jurisdictions with serious weaknesses in their measures to prevent, detect and punish such abuse. The public identification increases pressure on the jurisdiction to implement the necessary reforms. Failure to do so can have serious consequences for its position in the global economy. International trade involving jurisdictions that have been identified as high-risk may be subject to additional measures, which could increase the cost for international trading partners. In some cases, as financial institutions increasingly look at ways to minimise their risk, they may find that trade is no longer possible at all. 
The process has proven very successful. Often, the threat of public identification is enough to drive through the necessary reforms to strengthen anti-money laundering and counter terrorist financing reforms. As of February 2017, the FATF reviewed over 80 jurisdictions and publicly identified 61 of them. Of these 61, 49 have since taken the necessary action to address the significant weaknesses in their measures to prevent abuse of the financial system.

Global network
The FATF started off as a modest task force with 16 members and has since grown to 35 member jurisdictions and 2 regional organisations. 
In addition, the FATF relies on a strong partnership with its nine FATF-Style Regional Bodies to extend the effective implementation of sound anti-money laundering and counter terrorist financing measures beyond its own members.  Today, the FATF and FATF-Style Regional Bodies for the FATF Global Network brings together 198 jurisdictions that have each committed to implementing the FATF’s Recommendations. 
The FATF-Style Regional Bodies operate as autonomous bodies but share a common objective to protect the international financial system from abuse for money laundering and terrorist financing and identifying and addressing new and developing threats. 
FATF and FATF-Style Regional Bodies are committed to ensuring a consistently high operating standard and reciprocity across the FATF Global Network. This is particularly important for the mutual evaluation reports, which are therefore also subject to a quality and consistency review by all members in the FATF Global Network. 
To further build the FATF-Style Regional Bodies’ capacity to tackle money laundering and terrorist financing, through training and research programmes, the FATF established the FATF-Training and Research Institute (TREIN) with the support of the Korean Government in Busan, Korea. FATF-TREIN will promote the effective implementation of measures to protect the financial system and assist countries of the FATF Global Network that have a less mature framework to combat money laundering and terrorist financing to further develop their capacity.

Future priorities 
Staying ahead of new developments has always been a priority for the FATF. It has allowed it to strengthen its Standards when necessary so that they continue to provide countries with strong tools to detect, prevent and punish money laundering or the financing of terrorism, proliferation and other threats.
Under the FATF Presidency of Juan Manuel Vega-Serrano of Spain, the FATF has initiated a constructive dialogue with the Fintech/Regtech community to support innovation in financial services, while maintaining transparency and mitigating the associated risk.
FATF is also increasing its focus on the operational aspect of efforts to detect financial crime. It is engaging directly with its members’ financial intelligence units, who are responsible for investigating the suspicious transactions reports submitted by financial institutions in their country. This engagement provides an important insight into the challenges they face and the additional powers and tools they need to facilitate their important work and improve effective use of intelligence.
International co-operation and effective information sharing is crucial to disrupt terrorist financing and money laundering. Criminals and terrorists don’t stop at the border; they exploit any loophole or weakness in the international financial system. The FATF is working to identify the challenges to inter-agency information-sharing, and examples of how to improve such sharing. FATF also engages directly with the private sector to develop best practices which will help them detect suspicious transactions and share high quality intelligence. 
Through peer reviews, the FATF looks for evidence that a country’s efforts to tackle money laundering and terrorist financing are delivering expected results, this includes the collection and effective exchange of information that is of good quality in a timely way.
FATF continues its focus on increasing the effective implementation of the FATF Recommendations and in particular the availability and exchange of beneficial ownership and transparency in relation to legal persons and legal arrangements. The first assessments in the current cycle of mutual evaluations revealed that countries had not fully and effectively implemented these measures. This was also highlighted by the leaked Mossack Fonseca files which pointed to assets hidden in shell companies around the world. 
To improve effective implementation of the beneficial ownership and transparency measures, and in response to a call by the G20, the FATF is collaborating with Global Forum, to the emphasise the importance of beneficial ownership in the respective peer review processes and to coordinate the recommendations to countries to a clear set of priorities, backed by both FATF and Global Forum.  

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