FATF President Vows to Tackle Terrorist Funding, Trade-Based Money Laundering

Over the past three decades the Financial Action Task Force, or FATF, has evolved from a temporary panel charged with suggesting improvements to existing anti-money laundering laws and regulations in 15 jurisdictions and the European Union, to the world’s preeminent standard setting body and watchdog in the fight against illicit finance, covering 199 jurisdictions.

Though the global framework for combating financial crime has strengthened since the organization’s establishment in 1989, challenges remain.

On one hand, professional criminals are always seeking out new and sophisticated methods for concealing and legitimizing their illicit profits, while on the other, financial institutions under the weight of mounting compliance obligations have withdrawn in recent years from high-risk products and regions, leaving certain countries and individuals without access to banking services and beyond the reach of governance.

In an email interview with ACAMS moneylaundering.com reporter Valentina Pasquali, Santiago Otamendi, who was named FATF’s president last month, discussed his plans for the organization to address de-risking, combat cybercrime, increase engagement with law enforcement and even reassess the group’s formal structure.

What are the most pressing issues on your agenda as president?

During my presidency I will ensure that FATF continues to develop policy recommendations and assess how effectively members implement them. Promoting financial inclusion, enhancing transparency and access to beneficial ownership information will remain its prime focus. FATF will also maintain its engagement with relevant partners, such as the private sector, the heads of financial intelligence units, the fintech and regtech sectors as well as other international fora and organizations.

In addition, my key priority will be to reach out to the prosecutorial services and criminal justice systems, or PSCJS, to enhance their engagement in AML/CFT efforts. Successfully protecting the integrity of financial flows rests not only on the detection and prevention of money laundering, the financing of terrorism and proliferation, but also on obtaining appropriate convictions, freezing, confiscation and asset recovery for the benefit of the victims and States.

Three other issues that are high on my agenda this year are trade-based money laundering, which is a big problem, particularly for developing economies and merits greater attention. We will consider the laundering of the proceeds of cybercrime in order to inform effective measures by countries. Finally, I aim to raise the public profile of the FATF, to raise awareness of money laundering and terrorist financing risks and enhance the impact of our work.

What would you say the most important challenge facing FATF this next year is?

FATF was created 27 years ago as a taskforce with a time-limited mandate to tackle money laundering. Since then, its mandate has been expanded to include the financing of terrorism and proliferation. Today, the FATF oversees implementation of measures to tackle these threats by 199 jurisdictions.

As a result, FATF has been working to strengthen its institutional basis, governance and capacity, with the support of the G-20 and is considering whether it needs to evolve into a more formal structure in order to reflect the nature and scale of the threats it is coordinating global action against. These discussions will continue at the FATF’s next plenary meeting in Buenos Aires.

What data and analysis do you anticipate will come from increased engagement with investigators and prosecutors?

The information collected for and during prosecutions makes the PSCJS an important source of evidence and intelligence that can contribute to a better understanding of financial crime.

Much better use could be made of this in order to achieve a broader and more comprehensive understanding of the complete cycle of financial criminality. Particularly given the growing nexus between terrorist financing and organized crime, the PSCJS can contribute to identifying new methods that criminals and terrorists use to circumvent AML/CFT measures.

A closer engagement can also help highlight the challenges that PSCJS face in the prosecution of ML/TF, which could contribute to relevant guidance and best practices to improve the overall effectiveness of AML/CFT efforts.

How do you see trade-based money laundering schemes changing and what kind of work do you think FATF needs to undertake on this front to bring its framework up to date?

Trade-based money laundering schemes are often sophisticated and require a high degree of interagency cooperation, information sharing and analysis to detect and disrupt.

FATF has previously undertaken an analysis of trade-based money laundering risks and has also issued best practices. But I believe it is worthwhile to look again at our understanding of the risks and our institutional capabilities considering that many billions of dollars are laundered through the trade system and the fact that many authorities appear less capable of identifying and combating trade-based money laundering than they are in dealing with other forms of money laundering and terrorist financing.

We should work closely with other operational organizations such as the World Customs Organisation, Interpol and Europol and with the private sector, in addressing these issues.

What unique AML/CFT risks do technology-based financial services companies, or fintechs, pose?

Financial technology can improve access to financial services to customers, business and communities but the same efficiencies could also attract criminals wishing to launder the proceeds of their crimes or terrorists who wish to raise and move funds in support of terrorism.

The most important risk is products that are developed without taking into account how they could be abused.

FATF has reached out to the fintech sector to join forces and foster innovation that is resilient to terrorist financing and money laundering.

At a roundtable with representatives from the fintech/regtech sectors in May this year, participants discussed significant trends and developments. All agreed that fighting terrorism and money laundering is a common goal and agreed on the “San Jose Principles,” which set the framework for future dialogue between public and private sectors and help strike the right balance between supporting innovation and managing any ML/TF risks that arise.

Through such a partnership and with products that are designed to take ML/TF risk into account, fintech has the potential to make a significant contribution to effective AML/CFT efforts.

What have we learned about how Islamic State financing may transit through formal financial institutions, if at all? What are FATF’s plans on this front?

With declining revenues, ISIS continues to look for new methods to raise, move and use funds, and FATF continues to update its knowledge and understanding of these changes to their financial strategies and shares this with relevant authorities. Banks, exchange houses, money remitters and ATMs located in the areas adjacent to ISIS-held territories remain at the highest risk of misuse by ISIS members. Formal financial institutions are also used by facilitation and procurement networks linked to ISIS.

To choke off ISIS-related financial flows, exchange of information is essential. FATF recently finalized a report on interagency information sharing which will help key agencies involved in tackling terrorism and its financing, as well as agencies not traditionally involved in counter-terrorist financing activities, by providing good practices and practical tools to improve cooperation and exchange of information within jurisdictions.

The private sector, and financial institutions in particular, also have an important role to play. In the case of suspected terrorism-related activity, it is particularly important that financial institutions can rapidly share crucial information with their country’s financial intelligence units.

FATF is developing guidance for private sector information sharing. The guidance will cover information-sharing at groupwide level and potentially also between financial institutions not belonging to the same group.

During the Argentine presidency, FATF will also continue its research to identify how terrorist organizations fund the recruitment of new members and how they use new payment products and technology (including digital currencies) to finance terrorism and spread radicalization.

FATF recently revised its counterproliferation financing standards. Could you tell us a little more about what changes were made and whether or not more may be in store in light of North Korea’s continued nuclear and ballistic-missile activities?

FATF introduced measures to prevent and disrupt the financing of proliferation of weapons of mass destruction in 2012. Through Recommendation 7 it clarified the legal requirements of the United Nations Security Council Resolutions (UNSCRs) concerning the financing of the proliferation of weapons of mass destruction.

Since 2012, the U.N. Security Council adopted five new relevant resolutions. In June 2017, FATF revised the interpretive note to Recommendation 7 to bring it in line with the requirements of these recent resolutions and clarify the implementation of targeted financial sanctions to comply with them.

We will continue to pay close attention to the U.N. Security Council’s decisions, to determine if its standards need further clarification or strengthening.

FATF will also keep monitoring the Democratic People's Republic of Korea and, in light of the increasing risks, update its public statement on high risk and non-cooperative jurisdictions accordingly.

Originally published on ACAMS moneylaundering.com.

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