Financial Action Task Force on Money Laundering
Encyclopedia
The Financial Action Task Force (FATF), also known by its French
name, Groupe d'action financière (GAFI), is an intergovernmental organization founded in 1989 on the initiative of the G7
. The purpose of the FATF is to develop policies to combat money laundering
and terrorist financing
. The FATF Secretariat is housed at the headquarters of the OECD in Paris
.
The Task Force was given the responsibility of examining money laundering techniques and trends, reviewing the action which had already been taken at a national or international level, and setting out the measures that still needed to be taken to combat money laundering. In April 1990, less than one year after its creation, the FATF issued a report containing a set of Forty Recommendations, which provide a comprehensive plan of action needed to fight against money laundering.
In 2001, the development of standards in the fight against terrorist financing was added to the mission of the FATF. In October 2001 the FATF issued the Eight Special Recommendations to deal with the issue of terrorist financing. The continued evolution of money laundering techniques led the FATF to revise the FATF standards comprehensively in June 2003. In October 2004 the FATF published a Ninth Special Recommendations, further strengthening the agreed international standards for combating money laundering and terrorist financing - the 40+9 Recommendations.
During 1991 and 1992, the FATF expanded its membership from the original 16 to 28 members. In 2000 the FATF expanded to 31 members, in 2003 to 33 members, in 2007 it expanded to 34 members, in 2009 to 35 members, and in 2010 to its current 36 members.
Together, the Forty Recommendation and Special Recommendations on Terrorist Financing set the international standard for anti-money laundering measures and combating the financing of terrorism and terrorist acts. They set out the principles for action and allow countries a measure of flexibility in implementing these principles according to their particular circumstances and constitutional frameworks. Both sets of FATF Recommendations are intended to be implemented at the national level through legislation and other legally binding measures.
The FATF issued the Forty Recommendations in 1990 and completely revised them in 1996 and 2003. The current (2003) Forty Recommendations require states, among other things, to:
The FATF issued 8 Special Recommendations on Terrorist Financing in October 2001, following the September 11 terrorist attacks
in the United States
. The FATF issued a ninth Special Recommendation on Terrorist Financing in October 2004.
The Special Recommendations on Terrorist Financing broadly extend the application of the Forty Recommendations to terrorist financing and introduce new requirements relating to services such as alternative remittance
, wire transfer
s and cash couriers as well as non-profit organisations
.
. This was a list of 15 jurisdictions that, for one reason or another, FATF members believed were uncooperative with other jurisdictions in international efforts against money laundering (and, later, terrorist financing). Typically, this lack of cooperation manifested itself as an unwillingness or inability (frequently, a legal inability) to provide foreign law enforcement officials with information relating to bank account and brokerage records, and customer identification and beneficial owner
information relating to such bank and brokerage accounts, shell company, and other financial vehicles commonly used in money laundering. The FATF NCCT list is now defunct as the countries on it have made significant improvements in standards and cooperation.
The effect of the FATF Blacklist has been significant, and arguably has proven more important in international efforts against money laundering than has the FATF Recommendations. While, under international law
, the FATF Blacklist carried with it no formal sanction, in reality, a jurisdiction placed on the FATF Blacklist often found itself under intense financial pressure.
The review process for revising the Forty Recommendations was an extensive one, open to FATF members, non-members, observers, financial and other affected sectors and interested parties. This consultation process provided a wide range of input, all of which was considered in the review process.
The revised Forty Recommendations now apply not only to money laundering but also to terrorist financing, and when combined with the Eight Special Recommendations on Terrorist Financing provide an enhanced, comprehensive and consistent framework of measures for combating money laundering and terrorist financing. The FATF recognises that countries have diverse legal and financial systems and so all cannot take identical measures to achieve the common objective, especially over matters of detail. The Recommendations therefore set minimum standards for action for countries to implement the detail according to their particular circumstances and constitutional frameworks. The Recommendations cover all the measures that national systems should have in place within their criminal justice and regulatory systems; the preventive measures to be taken by financial institutions and certain other businesses and professions; and international co-operation.
The original FATF Forty Recommendations were drawn up in 1990 as an initiative to combat the misuse of financial systems by persons laundering drug money. In 1996 the Recommendations were revised for the first time to reflect evolving money laundering typologies. The 1996 Forty Recommendations have been endorsed by more than 130 countries and are the international anti-money laundering standard.
In October 2001 the FATF expanded its mandate to deal with the issue of the financing of terrorism, and took the important step of creating the Eight Special Recommendations on Terrorist Financing. These Recommendations contain a set of measures aimed at combating the funding of terrorist acts and terrorist organisations, and are complementary to the Forty Recommendations2.
A key element in the fight against money laundering and the financing of terrorism is the need for countries systems to be monitored and evaluated, with respect to these international standards. The mutual evaluations conducted by the FATF and FATF-style regional bodies, as well as the assessments conducted by the IMF and World Bank, are a vital mechanism for ensuring that the FATF Recommendations are effectively implemented by all countries
French language
French is a Romance language spoken as a first language in France, the Romandy region in Switzerland, Wallonia and Brussels in Belgium, Monaco, the regions of Quebec and Acadia in Canada, and by various communities elsewhere. Second-language speakers of French are distributed throughout many parts...
name, Groupe d'action financière (GAFI), is an intergovernmental organization founded in 1989 on the initiative of the G7
G8
The Group of Eight is a forum, created by France in 1975, for the governments of seven major economies: Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. In 1997, the group added Russia, thus becoming the G8...
. The purpose of the FATF is to develop policies to combat money laundering
Money laundering
Money laundering is the process of disguising illegal sources of money so that it looks like it came from legal sources. The methods by which money may be laundered are varied and can range in sophistication. Many regulatory and governmental authorities quote estimates each year for the amount...
and terrorist financing
Terrorist Financing
Terrorist financing came into limelight after the events of terrorism on 9/11. The US passed the USA PATRIOT Act to, among other reasons, attempt thwarting the financing of terrorism and anti-money laundering making sure these were given some sort of adequate focus by US financial institutions...
. The FATF Secretariat is housed at the headquarters of the OECD in Paris
Paris
Paris is the capital and largest city in France, situated on the river Seine, in northern France, at the heart of the Île-de-France region...
.
History of the FATF
In response to mounting concern over money laundering, the Financial Action Task Force on Money Laundering (FATF) was established by the G-7 Summit that was held in Paris in 1989. Recognising the threat posed to the banking system and to financial institutions, the G-7 Heads of State or Government and President of the European Commission convened the Task Force from the G-7 member States, the European Commission and eight other countries.The Task Force was given the responsibility of examining money laundering techniques and trends, reviewing the action which had already been taken at a national or international level, and setting out the measures that still needed to be taken to combat money laundering. In April 1990, less than one year after its creation, the FATF issued a report containing a set of Forty Recommendations, which provide a comprehensive plan of action needed to fight against money laundering.
In 2001, the development of standards in the fight against terrorist financing was added to the mission of the FATF. In October 2001 the FATF issued the Eight Special Recommendations to deal with the issue of terrorist financing. The continued evolution of money laundering techniques led the FATF to revise the FATF standards comprehensively in June 2003. In October 2004 the FATF published a Ninth Special Recommendations, further strengthening the agreed international standards for combating money laundering and terrorist financing - the 40+9 Recommendations.
During 1991 and 1992, the FATF expanded its membership from the original 16 to 28 members. In 2000 the FATF expanded to 31 members, in 2003 to 33 members, in 2007 it expanded to 34 members, in 2009 to 35 members, and in 2010 to its current 36 members.
The FATF Forty Recommendations and Special Recommendations on Terrorist Financing
The primary policies issued by the FATF are the Forty Recommendations on money laundering and the 9 Special Recommendations (SR) on Terrorist Financing (TF).Together, the Forty Recommendation and Special Recommendations on Terrorist Financing set the international standard for anti-money laundering measures and combating the financing of terrorism and terrorist acts. They set out the principles for action and allow countries a measure of flexibility in implementing these principles according to their particular circumstances and constitutional frameworks. Both sets of FATF Recommendations are intended to be implemented at the national level through legislation and other legally binding measures.
The FATF issued the Forty Recommendations in 1990 and completely revised them in 1996 and 2003. The current (2003) Forty Recommendations require states, among other things, to:
- implement relevant international conventions
- criminalise money laundering and enable authorities to confiscate the proceeds of money laundering
- implement customer due diligence (e.g. identity verification), record keeping and suspicious transaction reporting requirements for financial institutions and designated non-financial businesses and professions
- establish a financial intelligence unit to receive and disseminate suspicious transaction reports, and
- cooperate internationally in investigating and prosecuting money laundering.
The FATF issued 8 Special Recommendations on Terrorist Financing in October 2001, following the September 11 terrorist attacks
September 11, 2001 attacks
The September 11 attacks The September 11 attacks The September 11 attacks (also referred to as September 11, September 11th or 9/119/11 is pronounced "nine eleven". The slash is not part of the pronunciation...
in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
. The FATF issued a ninth Special Recommendation on Terrorist Financing in October 2004.
The Special Recommendations on Terrorist Financing broadly extend the application of the Forty Recommendations to terrorist financing and introduce new requirements relating to services such as alternative remittance
Informal value transfer system
An informal value transfer system refers to any system, mechanism, or network of people that receives money for the purpose of making the funds or an equivalent value payable to a third party in another geographic location, whether or not in the same form...
, wire transfer
Wire transfer
Wire transfer or credit transfer is a method of electronic funds transfer from one person or institution to another. A wire transfer can be made from one bank account to another bank account or through a transfer of cash at a cash office...
s and cash couriers as well as non-profit organisations
Non-profit organization
Nonprofit organization is neither a legal nor technical definition but generally refers to an organization that uses surplus revenues to achieve its goals, rather than distributing them as profit or dividends...
.
List of Non-Cooperative Countries or Territories
In addition to FATF's "Forty plus Nine" Recommendations, in 2000 FATF issued a list of "Non-Cooperative Countries or Territories" (NCCTs), commonly called the FATF BlacklistFATF Blacklist
The FATF blacklist was the common shorthand description for the Financial Action Task Force list of "Non-Cooperative Countries or Territories" ; that is, countries which it perceived to be non-cooperative in the global fight against money laundering and terrorist financing...
. This was a list of 15 jurisdictions that, for one reason or another, FATF members believed were uncooperative with other jurisdictions in international efforts against money laundering (and, later, terrorist financing). Typically, this lack of cooperation manifested itself as an unwillingness or inability (frequently, a legal inability) to provide foreign law enforcement officials with information relating to bank account and brokerage records, and customer identification and beneficial owner
Beneficial ownership
Beneficial ownership is enjoyed by anyone who has the benefits of ownership of a Security or property, and yet does not nominally own the asset itself....
information relating to such bank and brokerage accounts, shell company, and other financial vehicles commonly used in money laundering. The FATF NCCT list is now defunct as the countries on it have made significant improvements in standards and cooperation.
The effect of the FATF Blacklist has been significant, and arguably has proven more important in international efforts against money laundering than has the FATF Recommendations. While, under international law
International law
Public international law concerns the structure and conduct of sovereign states; analogous entities, such as the Holy See; and intergovernmental organizations. To a lesser degree, international law also may affect multinational corporations and individuals, an impact increasingly evolving beyond...
, the FATF Blacklist carried with it no formal sanction, in reality, a jurisdiction placed on the FATF Blacklist often found itself under intense financial pressure.
FATF: 40 Recommendations
Money laundering methods and techniques change in response to developing counter-measures. In recent years, the Financial Action Task Force (FATF) has noted increasingly sophisticated combinations of techniques, such as the increased use of legal persons to disguise the true ownership and control of illegal proceeds, and an increased use of professionals to provide advice and assistance in laundering criminal funds. These factors, combined with the experience gained through the FATF's Non-Cooperative Countries and Territories process, and a number of national and international initiatives, led the FATF to review and revise the Forty Recommendations into a new comprehensive framework for combating money laundering and terrorist financing. The FATF now calls upon all countries to take the necessary steps to bring their national systems for combating money laundering and terrorist financing into compliance with the new FATF Recommendations, and to effectively implement these measures.The review process for revising the Forty Recommendations was an extensive one, open to FATF members, non-members, observers, financial and other affected sectors and interested parties. This consultation process provided a wide range of input, all of which was considered in the review process.
The revised Forty Recommendations now apply not only to money laundering but also to terrorist financing, and when combined with the Eight Special Recommendations on Terrorist Financing provide an enhanced, comprehensive and consistent framework of measures for combating money laundering and terrorist financing. The FATF recognises that countries have diverse legal and financial systems and so all cannot take identical measures to achieve the common objective, especially over matters of detail. The Recommendations therefore set minimum standards for action for countries to implement the detail according to their particular circumstances and constitutional frameworks. The Recommendations cover all the measures that national systems should have in place within their criminal justice and regulatory systems; the preventive measures to be taken by financial institutions and certain other businesses and professions; and international co-operation.
The original FATF Forty Recommendations were drawn up in 1990 as an initiative to combat the misuse of financial systems by persons laundering drug money. In 1996 the Recommendations were revised for the first time to reflect evolving money laundering typologies. The 1996 Forty Recommendations have been endorsed by more than 130 countries and are the international anti-money laundering standard.
In October 2001 the FATF expanded its mandate to deal with the issue of the financing of terrorism, and took the important step of creating the Eight Special Recommendations on Terrorist Financing. These Recommendations contain a set of measures aimed at combating the funding of terrorist acts and terrorist organisations, and are complementary to the Forty Recommendations2.
A key element in the fight against money laundering and the financing of terrorism is the need for countries systems to be monitored and evaluated, with respect to these international standards. The mutual evaluations conducted by the FATF and FATF-style regional bodies, as well as the assessments conducted by the IMF and World Bank, are a vital mechanism for ensuring that the FATF Recommendations are effectively implemented by all countries
Members
The FATF membership is currently made up of 34 countries and territories and 2 regional organisations. The FATF also works in close co-operation with a number of international and regional bodies involved in combating money laundering and terrorist financing.
Argentina
Australia
Austria
Belgium
Brazil
Canada
Mainland China
Denmark
Finland
Early Modern France
Germany
Greece- Gulf Co-operation Council
Iceland
India
Republic of Ireland
Italy
Japan
-
-
Netherlands, 
Aruba, 
Curaçao and 
Sint Maarten.
-
-
Luxembourg
Mexico
New Zealand
Norway
Portugal
South Korea
Russia
Singapore
South Africa
Spain
Sweden
Switzerland
Turkey
United Kingdom
United States
FATF Associate Members
- The Asia/Pacific Group on Money LaunderingAsia/Pacific Group on Money LaunderingThe Asia/Pacific Group on Money Laundering is the FATF-style regional body for the Asia/Pacific region. It is an autonomous international organisation founded in 1997 in Bangkok, Thailand. The APG consists of 41 member jurisdictions and a number of observer jurisdictions and international and...
(APG) - Caribbean Financial Action Task Force (CFATF)
- The Council of Europe Select Committee of Experts on the Evaluation of Anti-Money Landering Measures (MONEYVAL)(formerly PC-R-EV)
- The Financial Action Task Force on Money Laundering in South America (GAFISUD)
- Middle East and North Africa Financial Action Task Force (MENAFATF)
- Eurasia Group (EAG)
- Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG)
- Intergovernmental Action Group against Money-Laundering in Africa (GIABA)
Observer members
- Several international organisations including the International Monetary FundInternational Monetary FundThe International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
and the World BankWorld BankThe World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
See also
- FATF BlacklistFATF BlacklistThe FATF blacklist was the common shorthand description for the Financial Action Task Force list of "Non-Cooperative Countries or Territories" ; that is, countries which it perceived to be non-cooperative in the global fight against money laundering and terrorist financing...
- HawalaHawalaHawala is an informal value transfer system based on the performance and honor of a huge network of money brokers, which are primarily located in the Middle East, North Africa, the Horn of Africa, and South Asia...
- Money launderingMoney launderingMoney laundering is the process of disguising illegal sources of money so that it looks like it came from legal sources. The methods by which money may be laundered are varied and can range in sophistication. Many regulatory and governmental authorities quote estimates each year for the amount...
- Terrorist financingTerrorist FinancingTerrorist financing came into limelight after the events of terrorism on 9/11. The US passed the USA PATRIOT Act to, among other reasons, attempt thwarting the financing of terrorism and anti-money laundering making sure these were given some sort of adequate focus by US financial institutions...
- White collar crime
External links
- Official website
- A review of the FATF Principles - 'The Global Standard' from Rohanbedi.com
- FATF-Style Regional Bodies
- Analysis and comparison of FATF / similar bodies provisions - for members of The Society of Anti Money Laundering Professionals
- Financial Action Task Force (FATF) guidelines defines PEPs
- International cooperation on money laundering and FATF