FATF Private Sector Consultative Forum Meeting

Dialogue with the Private Sector

logo_en fatfFATF Private Sector Consultative Forum Meeting, Brussels 26-27 March 2015

Brussels, 26-27 March 2015 – The FATF has concluded a two-day meeting of the Private Sector Consultative Forum in Brussels, Belgium. The meeting was hosted by the European Payment Institutions Federation (EPIF). The main objectives of the meetings were to:

  • discuss recent developments related to terrorism and terrorist financing risks
  • exchange views on “de-risking”
  • seek input and feedback into ongoing FATF work on the risk-based approach
  • hear about innovations in the financial services sector, and
  • discuss other issues of concern or interest to the private sector relating to the  implementation of anti-money laundering (AML) and counter-terrorist financing (CFT) measures, in line with the FATF Recommendations.

Over 160 participants representing the financial sector and other businesses and professions subject to AML/CFT requirements, civil society, and representatives of FATF members and observers attended the meeting. The FATF welcomed the open exchange of views and received useful input from the private sector on the following important issues.

Recent developments related to terrorism and terrorist financing risks

Given the increasing number of terrorist attacks, the FATF has moved terrorist financing to the top of the FATF agenda. The FATF recently published a typologies report on Financing of the Terrorist Organisation Islamic State in Iraq and the Levant, which has raised awareness of these serious issues in both the public and private sector. Targeted financial sanctions are an important means for combatting terrorist financing and the United Nations recently launched a consolidated sanctions list which is publicly available and will be a useful tool in this area. Going forward, the FATF will focus on countries’ implementation of measures to combat terrorist financing and will undertake further typologies work in this area.

An exchange of views on “de-risking”

The FATF reiterated its position on “de-risking” and the need for financial institutions and other designated businesses and professions to undertake proper implementation of the risk-based approach. Views on the drivers and scale of this issue vary considerably and the problem is not well understood. The FATF invited the Forum participants to share any statistics that they may have which would help to shed further light on the scale of this complex issue. It was also clarified that the FATF standards do not require a “know-your-customer’s-customer” (KYCC) approach to conducting customer due diligence.

The risk-based approach

The FATF sought feedback on its work to revise the existing FATF Guidance on the Risk-Based Approach for Money Services Businesses. These revisions will bring the existing FATF guidance into line with the revised FATF Recommendations which were adopted in February 2012. These discussions were a key step to developing a common understanding of the risk-based approach, how it applies both to private sector stakeholders and supervisors, and the particular challenges of managing agent networks. The FATF also had discussions with representatives from virtual currency providers on its work to develop risk-based approach guidance for that sector.

Innovations in the financial services sector

The participants heard about emerging technological and business innovations in providing financial services through mobile and internet-based payments, including their impact on financial inclusion and AML/CFT risk management for financial institutions.

Important developments since the last meeting of the Forum

Since last year’s meeting of the Private Sector Consultative Forum, the FATF has completed the following guidance papers and typologies reports which are of particular relevance to the private sector:

New country assessments

The FATF has also completed the first four mutual evaluation reports of the 4th round: Australia, Belgium, Norway and Spain. These reports provide an in-depth assessment of the effectiveness of each country’s AML/CFT system and level of technical compliance with the FATF Recommendations.

The Private Sector Consultative Forum plays a crucial role in fostering effective implementation of the FATF Recommendations by bringing together representatives of sectors which are subject to AML/CFT requirements (financial institutions and other designated businesses and professions), civil society, and policy makers to discuss issues of common interest. The FATF reiterates its commitment to continuing engagement with the private sector, and recognises the value that such dialogue brings to the work of the FATF.

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Outcomes of the Plenary meeting of the FATF, Paris, 25-27 February 2015

logo_en fatfParis, 27 February 2015 – Under the Australian Presidency, the FATF Plenary meeting of Plenary year FATF-XXVI was held on 25-27 February 2015.

The meeting was opened by Mr. Michel Sapin, French Minister of Finance and Public Accounts who stressed the importance of a united global front in the fight against terrorism, and urged the FATF Global Network to continue its important work (Speech by Mr. Sapin available in french only).

The main issues dealt with by this Plenary were:

FATF: Guidance on Transparency and Beneficial Ownership

Transparency-and-beneficial-ownership-200This FATF Guidance will assist countries to design and implement measures that will deter and prevent the misuse of corporate vehicles, such as companies, trusts and other types of legal persons and arrangements – for money laundering, terrorist financing and other illicit purposes.

Corporate vehicles play an essential role in the global economy, conducting a wide range of legitimate commercial and entrepreneurial activities. However, they have also been misused by criminals to disguise and convert the proceeds of their crimes. The appeal to criminals lies in the fact that corporate vehicles can be misused to circumvent controls by disguising the identity of known or suspected criminals and the source of funds or assets. The misuse of corporate vehicles could be significantly reduced if accurate information regarding both the legal owner and the ultimate beneficial owner, the source of the corporate vehicle’s assets, and its activities were readily available to the authorities. It is often very difficult for competent authorities to identify the natural, real person who truly has ownership and control of a company, trust or other corporate vehicle, particularly when the arrangement involves several countries.

Criminals make use of this lack of access to beneficial ownership information. By setting up one or more corporate vehicles, they are able to hide their identity, the true purpose of the account and the source or use of funds or property associated with the corporate vehicle.

The FATF Recommendations provide measures that address the transparency and beneficial ownership of legal persons (Recommendation 24) and legal arrangements (Recommendations 25). Countries should take measures to prevent the misuse of legal persons and arrangements from being misused for criminal purposes, including by:

Assessing the risks associated with legal persons and legal arrangements
Making legal persons and legal arrangements sufficiently transparent, and
Ensuring that accurate and up-to-date basic and beneficial ownership information is available to competent authorities in a timely fashion.
While the transparency and beneficial ownership requirements of the FATF Recommendations are aimed at fighting money laundering and the financing of terrorism, they also support efforts to prevent other serious crimes such as tax crimes and corruption. The FATF’s role as the standard setter on beneficial ownership was echoed in the actions taken by global leaders such as the G20 Leaders’ commitment to implement the FATF standards on beneficial ownership.

Earlier mutual evaluation cycles showed that implementing the FATF requirements on transparency and beneficial ownership proved challenging for a number of countries. The FATF has therefore developed this guidance, with input from private sector and corruption experts, to assist policy makers and practitioners in national authorities to identify, design and implement appropriate measures to prevent the misuse of corporate vehicles.

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FATF (finally): wholesale de-risking is to be replaced by a careful and considered assessment of AML/CFT risk on a case by case basis

logo_en fatfFATF clarifies risk-based approach: case-by-case, not wholesale de-risking

Paris, 23 October 2014 – The FATF Plenary discussed the issue of de-risking on 22 October. Generally speaking, de-risking refers to the phenomenon of financial institutions terminating or restricting business relationships with clients or categories of clients to avoid, rather than manage, risk in line with the FATF’s risk-based approach. De-risking can be the result of various drivers, such as concerns about profitability, prudential requirements, anxiety after the global financial crisis, and reputational risk. It is a misconception to characterise de-risking exclusively as an anti-money laundering issue.

This issue is of crucial importance to the FATF for two main reasons:

De-risking can introduce risk and opacity into the global financial system, as the termination of account relationships has the potential to force entities, and persons into less regulated or unregulated channels. Moving funds through regulated, traceable channels facilitates the implementation of anti-money laundering / countering the financing of terrorism (AML/CFT) measures. It is central to our mandate to ensure that the global AML/CFT standard is well understood and accurately implemented, and that countries and their financial institutions are provided with support in designing AML/CFT measures that meet the goal of financial inclusion.
Recent supervisory and enforcement actions have raised the consciousness of banks and their boards about these issues. However, it is important to put into context that these were extremely egregious cases involving banks who deliberately broke the law, in some cases for more than a decade, and had significant fundamental AML/CFT failings.

“De-risking” should never be an excuse for a bank to avoid implementing a risk-based approach, in line with the FATF standards. The FATF Recommendations only require financial institutions to terminate customer relationships, on a case-by-case basis, where the money laundering and terrorist financing risks cannot be mitigated. This is fully in line with AML/CFT objectives. What is not in line with the FATF standards is the wholesale cutting loose of entire classes of customer, without taking into account, seriously and comprehensively, their level of risk or risk mitigation measures for individual customers within a particular sector.

The risk-based approach should be the cornerstone of an effective AML/CFT system, and is essential to properly managing risks. The FATF expects financial institutions to identify, assess and understand their money laundering and terrorist financing risks and take commensurate measures in order to mitigate them. This does not imply a “zero failure” approach.

The FATF is committed to financial inclusion, and effective implementation of AML/CFT measures through proper implementation of the risk-based approach. Given the importance of this issue, and in light of these discussions the FATF has agreed:

To gather further evidence and analysis on the drivers and scale of de-risking. The FATF’s country assessments will be critically important in this regard, not least for FATF to reinforce its expectations on risk understanding and management. The FATF will also make full use of the work being conducted in other relevant international groups and forums, including the G20 Global Partnership for Financial Inclusion, the IMF, the World Bank Group, and the Basel Committee on Banking Supervision.
To continue to disseminate its various reports on risks, methods and trends allowing service providers to better understand money laundering and terrorist financing risks related to specific categories of customers and devise effective risk-based approaches.
To continue a number of existing activities and projects providing information and guidance to inform risk-based decision-making, including work on the risk-based approach for banks, the risk-based approach for money or value transfer services, best practices on combating the abuse of non-profit organisations, effective supervision and enforcement.
To stay abreast of developments in this area and to continue to interact with all actors relevant to this topic including the sectors most affected, regulators, supervisors, and banks.
To consider, on the basis of the evidence on the drivers and scale of de-risking, whether further work is necessary on specific issues. The FATF’s Policy and Development Group will determine this during the February 2015 FATF Plenary.
The FATF is adopting at this Plenary Risk-based Approach Guidance for the Banking Sector which gives clear guidance on how to properly implement the risk-based approach, and is explicitly meant to be read in conjunction with the FATF Guidance on AML/CFT and Financial Inclusion. Banks who implement the risk-based approach, in line with the guidance given in these two papers, will be well-placed to avoid the consequences of inappropriate de-risking behaviour.

 

“Who Can It Be Now?”

“Who Can It Be Now?”* – ABA Banking Journal.

With the ascendancy to the FATF Presidency of Roger Wilkins from Australia (hence the song title from the Australian band Men at Work *), I thought it a good time to review the “objectives” submitted by Mr. Wilkins’  that will guide his time in office …