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:


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

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

FATF: High-risk and non-cooperative jurisdictions

logo_en fatf


FATF PUBLIC STATEMENT – 14 February 2014 

Paris, 14 February 2014 – The Financial Action Task Force (FATF) is the global standard setting body for anti-money laundering and combating the financing of terrorism (AML/CFT). In order to protect the international financial system from money laundering and financing of terrorism (ML/FT) risks and to encourage greater compliance with the AML/CFT standards, the FATF identified jurisdictions that have strategic deficiencies and works with them to address those deficiencies that pose a risk to the international financial system. Jurisdictions subject to a FATF call on its members and other jurisdictions to apply counter-measures to protect the international financial system from the on-going and substantial money laundering and terrorist financing (ML/FT) risks emanating from the jurisdictions. 
Iran Democratic, People’s Republic of Korea (DPRK)
Jurisdictions with strategic AML/CFT deficiencies that have not made sufficient progress in addressing the deficiencies or have not committed to an action plan developed with the FATF to address the deficiencies. The FATF calls on its members to consider the risks arising from the deficiencies associated with each jurisdiction, as described below. 
Algeria, Ecuador, Ethiopia, Indonesia, Myanmar, Pakistan, Syria, Turkey, Yemen

Foreign Affairs: Turkey’s Dirty Money

Why Ankara Is Still on FATF’s Gray List
FEBRUARY 25, 2014
A 20 lira banknote is seen through a magnifying lens, January 28, 2014.

A 20 lira banknote is seen through a magnifying lens, January 28, 2014. (Murad Sezer / Courtesy Reuters)


Earlier this month, financiers, bankers, and investors waited anxiously to see whether Turkey, having passed a law in 2013 to prevent the financing of terrorism, would be taken off the Financial Action Task Force’s (FATF’s) list of high-risk and noncooperative jurisdictions.

The result? Disappointing. Turkey will remain in uncomfortable company on the gray list of countries that the FATF, the G7-founded body charged with developing and implementing global standards to counter illicit financing, deems as having deficiencies in their efforts to combat money laundering and terrorism financing. The body was most concerned about Turkey’s weak framework for identifying and freezing terrorist assets — for example, its definition of “terrorism financing” is too narrow and its asset freezing procedure is too slow — and urged investors and other countries to think twice before diving in.

For Turkey, the blow of remaining on FATF’s gray list, where it has been listed since 2011, was all the more painful because both Kenya and Tanzania were removed from it, “due to their progress in substantially addressing their action plan agreed upon with the FATF.” Turkey had surely hoped that, with its new law and recent decision to freeze the assets of individuals and legal entities known to have links to al Qaeda and the Taliban, it would be treated likewise. It was not.

To be sure, the outcome could have been worse. Prior to the mid-February FATF session in Paris, there had been talk of downgrading of Turkey’s status from gray to dark-gray, a classification that no other country shares and that is just one step above the category in which Iran and North Korea reside. That was always unlikely. But for some, Kenya and Tanzania’s simultaneous rise in the ranking will be as insulting as an explicit downgrade for Turkey — after all, Turkey’s economy, banking sector, and geopolitical influence dwarf those of Kenya and Tanzania.

For Turkey, the blow of remaining on FATF’s gray list was made all the worse by the fact that both Kenya and Tanzania were removed from it.

But how did FATF come to label Turkey, a member of NATO, as high-risk and noncooperative in the first place? And how can Turkey possibly face the prospect of sliding toward the financial netherworld?

To appreciate FATF’s ongoing concerns, one needs to look back a couple of years. In 2007, FATF published its third annual evaluation of the country, which had been a member in good standing of the group since 1991. Among its major findings was the fact that, given the size of the Turkish economy, Turkish banks reported relatively few suspicious transactions. And the wider Turkish financial community reported none. Furthermore, the number of detected violations and convictions was low. FATF also found Turkish preventative measures wanting.

By 2010, frustrated by Turkey’s failure to react to the earlier report, FATF reiterated its concerns. Although Turkey had improved its anti­–money laundering and counter­terrorism financing regime, the report noted, certain “strategic deficiencies” remained. Namely, Turkey had neither sufficiently criminalized terrorism financing nor implemented an appropriate framework for identifying and freezing terrorist assets, the two standards that FATF deems as core requirements. By failing to address those problems, Turkey was potentially exposing foreign banks and investors to being associated with terrorism financing.

Over the next 18 months, FATF reiterated its advice that Turkey should improve its implementation of the two core requirements, and it grew increasingly discouraged by Turkey’s lack of resolve. It was in 2011 that the body added Turkey to its gray list of countries — those that had not made sufficient remedial progress, including Bolivia, Ethiopia, Kenya, Myanmar (also known as Burma, which, at that time, was still governed by a military junta and subject to international sanctions), Sri Lanka, and Syria. By placing Turkey on this list, FATF was drawing yet more attention to the risks, in its view, of financial dealings with the country and its banking system, particularly that any transactions could amount to the facilitation of illicit financing and result in international sanctions.

Turkey slid further in June 2012, when FATF explicitly called on the country to enact “adequate counter-terror financing legislation” noting that, if Turkey did not make sufficient progress by the next meeting in October 2012, FATF would call on its members “to apply countermeasures” to their dealings with Turkey. That would have likely curtailed inward investment and limited Turkey’s access to the international financial system. The threat was not idle; in October 2012, FATF announced that countries dealing with Turkey should take immediate steps “proportionate to the risks arising from the deficiencies associated with Turkey.” It also issued a final ultimatum that Turkey would be suspended from FATF in February 2013 if it did not shape up. In turn, several financial regulators, including the U.S. Treasury Department’s FinCEN (Financial Crimes Reporting Network),released advisories warning of FATF’s guidance.

Just one week before FATF’s deadline expired, the Turkish government enacted a new law on terrorism financing. It addressed many of the shortcomings that FATF had identified years earlier, including by creating the legal basis for the freezing of terrorist assets. The legislation came not a moment too soon. As Fitch, the credit ratings agency wrote following the signing of the new law, FATF suspension “could have disrupted access to financial markets for Turkish entities … [and] increased Turkey’s vulnerability to an external financing shock.” (Of course, just weeks before, Fitch had upgraded Turkey’s sovereign debt rating to investment grade, after nearly 20 years of listing Turkish debt as sub-investment grade.)

Any disruption to Turkey’s financial markets would have been especially difficult for the country in light of the U.S. Federal Reserve’s decision to taper its bond-buying program, which came a few months later. The Fed taper has put pressure on foreign-currency dependent economies and made financial markets increasingly volatile. If Turkey had lost FATF support, many investors would have likely fled in search of more stable opportunities. In addition, Turkish banks would have taken a hit, since inclusion on the dark gray list would have resulted in severe restrictions on transactions with European and U.S. banks.


Turkey might have avoided being downgraded or kicked out of FATF, but it is still in a troubling situation. The country’s domestic politics are in upheaval. And FATF continues to raise concerns. As the body has shown, moreover, it is not afraid to use its standing and influence to enforce better practices.

Turkey should expect its anti­–money laundering and counter­–terrorism financing regime to remain under intense international scrutiny. The country’s location allows it to be a crossroads for people and trade. Turkey, a member of NATO and sometime-EU-aspirant, is able to play an outsized role in geopolitics. Yet its position also makes it vulnerable. Its borders with Syria and Iran are appealing routes through which to circumvent the sanctions on Iran and to deliver materiel, money, and fighters to the conflict in Syria. Indeed, no recent theater of war has been easier for outsiders to join than Syria thanks to next-door Turkey’s global and low-cost air transportation infrastructure.

Turkey cannot hide from scrutiny. It must fully cooperate with international sanctions and standards. Turkey’s name continues to be linked too often to individuals, groups, and schemes — including Hamas and the so-called gas-for-gold scheme, which facilitated Iranian sanctions busting — that conflict with these standards. The U.S. Treasury Department recently identified a number of individuals and companies with links to Iran, some of which are based in Turkey. The extent of Ankara’s involvement in the dismantling of these operations will determine its standing with FATF and will demonstrate whether Turkey is cooperating with global financial objectives.

This year will undoubtedly be difficult for Turkey, given internal political turmoil and international market volatility. Along with Brazil, India, Indonesia, and South Africa, market commentators have identified Turkey as a member of the so-called Fragile Five economies that they believe are most at risk due to the Fed’s taper. Indeed, the Turkish central bank has already taken dramatic action, unpopular with Prime Minister Tayyip Reccep Erdogan, to boost the Turkish lira, which has lost about 30 percent of its value against the U.S. dollar in the past year.

But the fact that Turkey remains in FATF’s high-risk and uncooperative category is the most concerning point of all. FATF’s status quo decision will undoubtedly dent Turkish national pride and perhaps fuel domestic suspicions of malign foreign intentions. With strong headwinds blowing, however, Turkey can ill afford to lose the confidence of investors and the international financial system.

Money laundering and terrorist financing through trade in diamonds

ML_TF-Through-Trade-in-Diamonds-200Money laundering and terrorist financing through trade in diamonds 

The FATF and the Egmont Group of Financial Intelligence Units collaborated on a typologies research project to identify the money laundering and terrorist financing (ML/TF) vulnerabilities and risks of the “diamond pipeline”, which covers all sectors in the diamond trade: production, rough diamond sale, cutting and polishing, jewellery manufacturing and jewellery retailers.

Based on research conducted, analysis of case studies collected by the project team and after consultation with the private sector, the report concludes that the diamonds trade is subject to considerable vulnerabilities and risks. The closed and opaque nature of the diamonds markets and the high value of diamonds combined with a lack of expertise in this area on the part of the authorities have left this industry susceptible to abuse by criminals.

The diamonds trade has existed for centuries.  It has developed a unique culture and trade practices, which have their own characteristics and variations across countries and continents. However, the international diamond trade has changed in the last few decades:

  • De Beers no longer holds the same all inclusive diamonds monopoly.
  • A number of smaller diamond dealers have entered the market.
  • Distribution channels have become more diverse.
  • New trade centres have emerged with billions of dollars’ worth of diamonds, and financial transactions go in and out of newly founded bourses and their ancillary financial institutions.
  • Cutting and polishing has shifted (except for the most valuable stones) from Belgium, Israel and the US mainly to India and China, with smaller cutting centres emerging.
  • Cash transactions are still prevalent but the usage of cash is diminishing.
  • The internet, as in all other facets of life, is rapidly taking its place as a diamonds trading platform.

These significant changes in the “diamonds pipeline” structure and processes raised the question of whether the risks and vulnerabilities remain the same and whether current anti-money laundering / countering the financing of terrorism (AML/CFT) standards and national regulations are sufficient to mitigate the different ML/TF risks and vulnerabilities identified in the research.

The case studies included in the report demonstrate the creative methods that criminals have used to exploit diamonds trade for the purpose of money laundering and terrorist financing. This report aims to help build awareness with the regulatory, enforcement and customs authorities as well as reporting entities about risks and vulnerabilities of the diamonds trade, and how to mitigate them.

Some of the risks and vulnerabilities of the diamonds trade, identified in this report are

  • Global nature of trade – The trade in diamonds is transnational and complex, thus convenient for ML/TF transactions that are, in most cases, of international and multi-jurisdictional nature.
  • Use of diamonds as currency –  Diamonds are difficult to trace and can provide anonymity in transactions.
  • Trade Based Money Laundering (TBML) – The specific characteristics of diamonds as a commodity and the significant proportion of transactions related to international trade make the diamonds trade vulnerable to the different laundering techniques of TBML in general and over/under valuation in particular.
  • High amounts – The trade in diamonds can reach tens of millions to billions of US dollars. This has bearing on the potential to launder large amounts of money through the diamond trade and also on the level of risks of the diamonds trade.
  • Level of awareness – Law enforcement and AML / CFT authorities, including financial intelligence units (FIUs), have limited awareness of potential ML/TF schemes through the trade in diamonds.

FATF issues new Mechanism to Strengthen ML/TF Compliance

Methodology-200pParis, 22 February 2013 – The Financial Action Task Force’s new Methodology for assessing technical compliance with the FATF Recommendations and the Effectiveness of AML/CFT systems sets out how the FATF will determine whether a country is sufficiently compliant with the 2012 FATF Standards [1] and whether its AML/CFT system is working effectively.

The FATF is the global standard-setter in the fight against money laundering, and the financing of terrorism and  proliferation of weapons of mass destruction.  Over the past twenty years the FATF has developed, used and refined rigorous compliance mechanisms to help ensure global compliance with its Standards. It assesses compliance through a stringent country evaluation and monitoring process. A new round of evaluations will begin in 2014.

The new Methodology will provide the basis for an integrated analysis of the extent to which a country is compliant with the FATF Standards and the level of effectiveness of its AML/CFT system.

Bjørn S. Aamo, President of the FATF, said

“The new Methodology adds a new dimension  to the evaluation of countries compliance with FATF-standards.  It remains as important as before that all countries implement the Recommendations of the FATF in their legal systems, however, the new Methodology lays the foundation for a systematic assessment of the effectiveness of national systems.”

“The future assessments will determine how well countries achieve the objective of fighting Money Laundering and Financing of Terrorism.”

The Methodology comprises two inter-linked  components:

  • The technical compliance assessment will address the specific requirements of each of the FATF Recommendations, principally as they relate to the relevant legal and institutional framework of the country, and the powers and procedures of competent authorities.  These represent the fundamental building blocks of   an AML/CFT system.The level of compliance with each Recommendation will be indicated with one of the following ratings: compliant, largely compliant, partially compliant or non-compliant.
  • The effectiveness assessment will assess the extent to which a country achieves a defined set of outcomes that are central to a robust AML/CFT system and will analyse the extent to which a country’s legal and institutional framework is producing the expected results.How effectively each of the Immediate Outcomes in the Methodology is achieved by a country will be set out  in the evaluation report and will include one of the following ratings: high-level of effectiveness, substantial level of effectiveness, moderate level of effectiveness and low level of effectiveness.

The Methodology will be used by the FATF, the FATF-Style Regional Bodies (FSRBs) and other assessment bodies such as the IMF and the World Bank.

[1] The FATF Standards are comprised of the FATF Recommendations, their Interpretive Notes and applicable definitions from the Glossary.