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Issues
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Terrorist Financing The Forty Recommendations The Recommendations (full text, summary) are designed to set minimum standards for countries to implement according to "their particular circumstances and constitutional framework." The aim is to:
They also allow for the monitoring and evaluation of states by the FATF and FATF-style bodies, the World Bank and the IMF. Policy Laundering issues in the Forty Recommendations . . . The Nine Special Recommendations The FATF extended its ambit to cover terrorist financing at a Plenary held in Washington, D.C. on 29 th and 30 th October 2001. During this Plenary, the FATF agreed and issued new international standards, known as the Special Recommendations, to combat terrorist financing which it requires countries to implement. In short, it requires member states to:
In addition, the FATF has produced several more detailed documents to enhance the content of the Special Recommendations. These include: "Combating the Abuse of Non-Profit Organisations -- International Best Practices " The "International Best Practices" outlined here include:
The April 2002 "Guidance for Financial Institutions in Detecting Terrorist Financing" is intended to complement the Special Recommendations. Notably, Annex A contains five lists of "characteristics of financial scrutiny that may be a cause for increased scrutiny" and to which financial institutions should pay particular attention, including:
Annex 2 of the 'Guidance for Financial Institutions in Detecting Terrorist Financing' details the sources of information that 'may help financial institutions in determining whether a potentially suspicious or unusual transaction could indicate funds (are) involved in the financing of terrorism and thus be subject to reporting obligations'. The recommended sources are as follows:
Monitoring Compliance with FATF Standards The FATF employs two methods to monitor the degree of compliance that a member state is practicing with regard to the Forty Recommendations and the Special Recommendations. First, a self-assessment exercise is conducted annually whereby each state provides information as to the level it has reached regarding implementation through the means of a questionnaire. The questionnaires are used to assess both individual and collective compliance. Second, the mutual evaluation process provides a more in-depth way to assess complicity. Each state is examined by the FATF during an on-site visit. This visit is conducted by three or four experts, selected from the legal, financial and law enforcement spheres from other member governments. After the visit, a report is produced to reveal the current level of implementation and to highlight the areas needing improvement. Two rounds of mutual evaluations have been completed and a third is underway. The reports produced from the evaluations can be viewed on the FATF website. A Methodology for Assessing Compliance To assist member states in assessing their degree of compliance, the FATF produced in 2004 an Anti-Money Laundering/Combating Terrorist Financing (ALM/CTF) Methodology (pdf) which will allow states to identify "the systems and mechanisms developed by countries with diverse legal, regulatory and financial frameworks, in order to implement robust ALM/CTF systems. The FATF state that the criteria within
the Methodology does not expand or modify the FATF Recommendations,
however the text is an interesting division of "essential criteria" and
"additional elements," the latter posing rhetorical questions. Non-Cooperative Countries and Territories (NCCTs) Initiative The NCCT List and Annual Reports The NCCT Initiative constitutes a list of countries or territories that are considered to be non-compliant with the adoption and implementation of internationally recognized standards for the prevention, detection and punishment of money laundering and terrorist financing. Annual NCCT Reviews are conducted that include information on the NCCT processes and policies and any progress made by countries or territories on the NCCT list. These are published on the FATF website. The first NCCT report produced in February 2000 (pdf) outlines 25 criteria against which a country is assessed. In brief, the criteria relate to four distinct areas:
In order to produce the reports, the FATF established four regional review groups (Americas, Asia/Pacific, Europe, Africa/Middle East) consisting of representatives from the governments of member states. Countries are selected for review based on FATF members' experience with that jurisdiction. The Review Groups informs the country that they are to be reviewed and then collates relevant laws, regulations and information. The findings are then compared with the 25 criteria and a report is drafted. The draft report is sent to the country for comment, both of which are subsequently discussed between the FATF and the respective country during a series of meetings. Finally, the draft reports are discussed and adopted at FATF Plenaries. Countries on the NCCT List as of October 2005 were Myanmar and Nigeria. Consequences of Listing For a country or territory being placed on the NCCT list, there are two consequences. First, Recommendation 21 applies to all NCCTs. This requires that financial institutions should give special attention to business relationships and transactions with persons, including companies and financial institutions, from countries which do not or insufficiently apply the FATF Recommendations. If transactions have no visible economic or lawful purpose, their background and purpose should as far as possible be examined, the findings put in writing and be available to assist the competent authorities. Second, the FATF recommends the application of countermeasures to countries that have not made sufficient progress in implementing the standards. These should be gradual, proportionate and flexible and adopted in a collaborative fashion by other states towards a shared aim. Specifically, 'the FATF believes that enhanced surveillance and reporting of financial transactions and other relevant actions involving these jurisdictions would now be required," including:
De-Listing The progress of every NCCT is discussed at every FATF plenary meeting and the relevant review group maintains contact with the listed country. Implementation of necessary legislation and regulations is the next step a listed country must take to addressing its stated deficiencies. Once this is completed, the country must submit to the FATF a report of how it is going to achieve effective implementation and in what time frame. The NCCT should also address analysis and follow up of suspicious activity reports, the conduct of money laundering investigations, examinations of the practices of financial institutions and the provision of budgetary and human resources. Once the FATF feels that significant
progress has been made, the FATF may request that the review group conduct an on-site visit to assess implementation. When the
review group is satisfied the country has made sufficient progress, it
recommends to the Plenary removal from the NCCT list. Decisions on
de-listing are taken only at Plenary Meetings. FATF Typologies Report The typologies reports (pdf) provide a forum for law enforcement practitioners and experts to share information on current methods and trends in money laundering and terrorist financing and effective measures to counter these activities, with a view to informing subsequent policymaking. The conventions are held annually and involve a network of project teams and workshops and the culmination of an overall report, which since 1996 has been accessible on the FATF website. In February 2004, the FATF Plenary established a Working Group on Typologies to enhance the effectiveness of research and analysis. |