WHAT IS THE FATF?

The Financial Action Task Force (FATF) can be seen as the international standard-setter in the fight against terrorist financing and money laundering.

It was established in 1989, by a Group of Seven (G-7) Summit held in Paris. The summit recognised the growing threat posed by money laundering to the banking system and financial institutions and set up the FATF to develop and promote national and international policies, globally, to help eliminate this threat.

In 2001, the FATF took over responsibility for the development of standards in the fight against terrorist financing.

The FATF’s main responsibility is to ensure global action to combat money laundering and terrorist financing is undertaken. Since its creation, the FATF has been at the forefront of measures designed to counter criminal attempts to use the financial system to further criminal and terrorist purposes. Most notably, in 1990 the FATF established a series of money laundering recommendations.

In 2001, they established a series of special recommendations on the prominent threat of terrorist financing, collectively known as the 40+9 Recommendations whose aim was to unite anti- money laundering and terrorist financing efforts into one universal instrument.

The FATF examines techniques and counter- measures and reviews whether existing national and international policies are sufficient to combat the developing threat. The FATF monitors compliance with the 40+9 recommendations through a two- pronged strategy.

Firstly, member countries complete annual self- assessment style questionnaire and secondly, the FATF regularly conducts on-site Mutual Evaluation Report examinations on individual jurisdictions, assessing the effectiveness of their national policies in dealing with money laundering and terrorist financing. The importance was reiterated in 2005 by the United Nations Security Council:

[The United Nations] strongly urges all Member States to implement the comprehensive, international standards embodied in the Financial Action Task Force’s (FATF) Forty Recommendations on Money Laundering and the FATF Nine Recommendations on Terrorist Financing.

FATF MONEY LAUNDERING RECOMMENDATIONS

Global efforts to combat money laundering and the financing of terrorism have been tailored to attack criminal and terrorist organisations through their financial operations

[2]. The strategy has been aimed at depriving them of the means to act and gain knowledge of how their financial networks and methods work in order to prevent any future operations.

The 40 recommendations mentioned above are intended to provide counter-measures against money laundering and encompass the criminal justice system, law enforcement, the financial system and its regulators, together with international co-operation. They also set out principles and minimum standards for action.

Countries are free to implement the details of the recommendations in the manner they choose, in order to fit them into their own constitutional frameworks. Despite not being binding, many countries have chosen to make a commitment to implement them in order to combat money laundering.

The recommendations were first published in 1990, and have been subsequently revised in 1996 and 2003. They are constantly reviewed and updated to take into account any changes or anticipated changes in money laundering trends. In 1996, the FATF issued a series of interpretative notes designed to clarify their application.

In 2003, the FATF amended the scope of the recommendations to include designated non- financial businesses and professionals.

 Designated non-financial businesses and professionals are defined by the FATF to include casinos, real estate agents, dealers in precious stones and metals, and lawyers, notaries, other independent legal professionals and accountants.

The 2003 amendments applied, for the first time, customer/ client due diligence and record keeping practices to designated non-financial businesses and professionals.

They are required to report transactions suspected of being linked to money laundering to the designated authorities.

In the case of lawyers, the FATF recommends that lawyers be excused from this responsibility if their knowledge or suspicions arises as a result of legal professionally privileged circumstances. The 2003 amendments revised the recommendations to include the FATF’s enhanced counter terrorist financing mandate.

The forty recommendations suggest (summarised):

1. The criminalisation of money laundering on similar terms to those suggested in the 1988 UN convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances and the 2000 UN Convention against Transnational Organized Crime, as well as for extended sanctions (civil and regulatory) to be applied to legal persons who fail to adhere to the Directive;

2. That countries adopting the recommendations should establish a national centre for receiving information about suspected money laundering transactions (a Financial Intelligence Unit or FIU) and ensure that there are designated law enforcement authorities that have responsibility and resources necessary to investigate such transactions;

3. The adoption of measures such as tracing in order to confiscate property and proceeds from money laundering. The recommendations also call for steps that prevent the State from recovering such property to be voidable;

4. That client due diligence should be completed by all financial institutions and non-financial businesses and professions, including lawyers, and records to be kept for five years. The recommendations also call for ‘special attention’ to be paid to all complex and unusually large transactions and to those transactions involving new or developing technologies;

5. That there be a requirement for all financial institutions and non-financial businesses and professions including lawyers to report suspicious transactions to the Financial Intelligence Unit (FIU) and for protection/ immunity to be offered to such informants;

6. Financial institutions should develop programmes, such as internal policies, designed to combat money laundering and terrorist financing and ensure that all subsidiaries adhere to the recommendations to the extent the country has implemented them;

7. That all shell banks should be discontinued and all financial institutions should report all domestic and international currency transactions above a certain amount;

8. That there should be enhanced regulation, supervision and guidance offered to financial institutions and non-financial businesses and professions, in their compliance with the recommendations; and

9. That there should be improved efficiency regarding international co-operation, mutual legal assistance including possible extradition and information sharing amongst jurisdictions.

TERRORIST FINANCING SPECIAL

RECOMMENDATIONS

The nine special recommendations, designed to combat terrorist financing were first published by the FATF in 2001, in response to the terrorist attack on September 11 2001. They initially contained only eight recommendations encompassing the criminalisation of terrorist financing and provision for combating the problem. They were then updated in 2004 to include cash couriers.

Cash couriers are used by individuals who wish to transfer cash internationally. The benefits of the human courier system are understandable. There is no electronic transfer and, therefore, no lasting record of the transaction. It is also arguable that the courier carries all the risk in carrying the “dirty” money into the destination country.

The amendment reflected the growing concern that money resultant from criminal activities, such as drugs trafficking, is being increasingly used to fund terrorist extremists, The Irish Republican Army (IRA) in Northern Ireland, the Revolutionary Armed Forces of Colombia (FARC), the Madrid bombings in 2004 and the September 11 attacks were arguably funded by money gained as a result of criminal activities   [3]). Implementation has been monitored through a self- assessment questionnaire, designed to elicit details from different jurisdictions, as to their progress with their implementation.

The nine special recommendations call for (summarised):

1. The immediate ratification and implementation of UN anti-financing of terrorism instruments, such as the 1999 United Nations International Convention for the Suppression of the Financing of Terrorism;

2. The criminalisation of the financing of terrorism, terrorist acts and terrorist organisation and the freezing and confiscation of terrorist assets;

3. A national method of reporting suspected funds for terrorism, terrorist acts or terrorist organisations to be established;

4. The international co-operation and mutual legal assistance to ensure prompt and effective criminal/civil investigations and prosecutions of suspected terrorist financing, acts and organisational breaches;

5. Financial and non-financial entities providing a service for the transmission of money or value to be subject to all of the FATF Recommendations;

6. Client due diligence to be completed by all financial institutions and for enhanced security measures to be adopted in relation to clients who do not provide complete originator information; and

7. Enhanced regulation of non-profit organisations and other entities particularly susceptible to abuse, together with enhanced measures designed to track the physical cross-boarder transportation of funds.

The ninth recommendation called for countries to adopt measures to detect and prevent the physical cross-border transportation of money related to terrorist financing and money laundering.

The goal in providing these special recommendations is to ensure that financial institutions and other susceptible entities do not unwittingly hide or move terrorist funds. The FATF has also provided guidance on detecting terrorist financing activities for financial institutions and for the implementation of the special recommendations in general.