The Financial Action Task Force (FATF): Strengthening Global Defences Against Money Laundering and Terrorist Financing

The Financial Action Task Force (FATF) stands at the forefront of the global fight against money laundering and terrorist financing. As an intergovernmental body, the FATF develops and promotes policies to protect the global financial system from abuse by illicit actors. In its ongoing efforts to enhance financial security, the FATF is updating its guidance on National Risk Assessments (NRA), particularly concerning Money Laundering NRAs.

What is a National Risk Assessment (NRA)?

A National Risk Assessment (NRA) is a comprehensive process that countries use to identify, assess, and understand the risks of money laundering (ML) and terrorist financing (TF) they face. By conducting NRAs, countries can develop targeted strategies to mitigate these risks effectively. The FATF's updated guidance aims to improve the effectiveness of NRAs, ensuring that countries are better equipped to address evolving ML/TF threats.

Recent FATF Developments

Jamaica and Türkiye: The FATF recently removed Jamaica and Türkiye from its increased monitoring list, acknowledging the progress these countries have made in strengthening their AML/CFT/CPF (anti-money laundering/combating the financing of terrorism/counter-proliferation financing) regimes. Both nations will continue to collaborate with the FATF and their respective FATF-Style Regional Bodies to further enhance their regulatory frameworks and enforcement mechanisms.

Democratic People’s Republic of Korea (DPRK): Despite progress elsewhere, the FATF remains deeply concerned about the DPRK's continued failure to address significant deficiencies in its AML/CFT regime. The FATF highlights the serious threats posed by the DPRK’s illicit activities related to the proliferation of weapons of mass destruction and their financing, urging immediate corrective actions.

Gatekeepers Review: The FATF has completed its review of measures in place to prevent gatekeepers—such as accountants, lawyers, real estate agents, and trust and company service providers—from being used to facilitate money laundering and terrorist financing. The review underscores the need for robust regulation and oversight to ensure these professionals can effectively identify and report suspicious activities.

The Risk-Based Approach to AML/CFT

In 2007, the FATF introduced the "Risk-Based Approach to Combating Money Laundering and Terrorist Financing" guidance, emphasising the importance of a risk-based approach (RBA) in AML programs across various industries. An RBA enables organisations such as banks and financial institutions to identify, assess, and understand their exposure to ML/TF risks and to implement appropriate mitigation measures. The RBA process includes:

1. Risk Assessment: Identifying inherent risks of ML/TF by assessing business areas such as products, services, delivery channels, geographic locations, new developments and technologies, clients and business relationships, activities of foreign and domestic affiliates, and other relevant factors.
2. Risk Classification: Classifying clients' risk based on the assessed factors and considering regulatory, reputational, legal, and financial risks.
3. Risk Mitigation: Implementing controls to manage the identified ML/TF risks.
4. Risk Review: Keeping customer identification and beneficial ownership information updated and reviewing it periodically.
5. Ongoing Monitoring: Continuously monitoring high-risk financial transactions to detect and address any suspicious activities promptly.

Summary

The FATF's efforts in updating guidance on NRAs, monitoring country progress, addressing ongoing concerns, and emphasising the risk-based approach demonstrate its comprehensive strategy to combat financial crimes. By adhering to FATF standards and recommendations, countries and financial institutions can protect their financial systems from abuse, ensuring a secure and resilient global financial environment.

We at ReTRRAC help Accountants, Banks, Financial Institutions, Lawyers, Money Service Businesses, High Value Dealers (HVD) to navigate MLR 2017 regulations laid down by respective authorities to combat money laundering and stay compliant. Streamline your compliance process and reclaim valuable time to focus on what matters most.

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Author Sarita Sitaraman