Role of FATF: The Financial Action Task Force

Role of FATF: The Financial Action Task Force

The global economy is rapidly growing by leaps and bounds, and so are the financial crimes. Money laundering is a worldwide concern as billions of dollars are laundered every year. The Financial Action Task Force (FATF), established in 1989, is an inter-governmental policy-making body that can be defined as the backbone of the fight against money laundering and terrorist financing.  

The organisation makes policies – at the local and international levels to prevent money laundering and other financial crimes resulting from funding from illicit money.  

The FATF has issued 40 recommendations to prevent money laundering and provided 9 special recommendations to prevent terrorist financing. Initially, the organisation was set up to combat money laundering, but recently, its scope has been widened to avoid funding weapons of mass destruction, corruption, and terrorist financing. A large number of developed countries are part of the FATF.  

This global organisation prevents financial crime and laundering of money to prevent financial terrorism. The objective of the FATF is to provide guidelines and ensure effective implementation of the legal, regulatory, and operational measures for containing money laundering, terrorist financing, and other financial threats that plague the society, the economy, and the world at large.  

The organisation monitors the member countries’ progress and evaluates how effective they have been in implementing the anti-money laundering rules and regulations. It also reviews the anti-money laundering and terrorist financing mechanisms, tools, and countermeasures. It promotes global adoption of the AML/ CFT guidelines to enable countries to fight money laundering and terrorist financing. It also includes measures to prevent the financing of proliferation.  

The FATF recommendations act as guidelines for member countries which they should have in their criminal justice and regulatory systems. These are preventative measures that financial institutions and other regulated entities should adopt to fight money laundering and terrorist financing. In this way, they also safeguard their reputation and avoid non-compliance and penalties. By following the recommendations, financial institutions and businesses can make their customer onboarding process more transparent and detect and deter criminals from misusing their organisation and the financial system to launder money obtained from fraudulent means.  

Role of FATF

The FATF provides recommendations on setting up relevant and competent authorities with specific functions and defines their powers and mechanism to cooperate with countries to fight against money laundering and terrorist financing.  

On Feb. 16, 2012, the FATF issued revised recommendations. The notable changes are mentioned as follows:  

  • The FATF lays emphasis on adopting a risk-based approach to implement the Anti-money laundering and combatting of terrorism financing. It will help the countries to employ a proactive approach to mitigate the risks. It has been fully enhanced within the Standards.  
  • Get quick access to correct information on the beneficial ownership of the legal entities, and the arrangements for the same have been strengthened.  
  • The Tax offences for money laundering have been made predicate offences (a crime which is a component of a more significant crime). 
  • The powers and responsibilities of the FIU and law enforcement have increased. The coverage of international cooperation has been broadened.   
  • The definition of PEP has been broadened. Now it includes PEPs- Politically Exposed Persons- domestic and international organisations.  
  • The scope for financial group (or consolidated) supervision has been enhanced.  
  • The transparency of wire transfers has been improved. 
  • The FATF has added new standards for implementing targeted financial sanctions to prevent the accumulation of weapons of mass destruction. 

Conclusion

 It is essential to follow the local AML rules and regulations and follow the recommendations provided by the FATF. Financial institutions need to be proactive in implementing the AML laws and protect their business from being misused by criminals. They can rely on professional AML consultants who offer a comprehensive range of AML compliance services.  

AML UAE is one of the top AML consultants in UAE, serving thousands of businesses and helping them follow the AML laws and avoid non-compliance risks. Get a wide range of AML compliance services such as AML/CFT Policy, Controls and Procedures Documentation, AML Training, and AML/CFT health check. For further information on the full range of services, feel free to visit AML UAE. 

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About the Author

Pathik Shah

CISA, FCA, CS, DISA (ICAI), FAFP (ICAI)

Pathik is a multi-disciplinary professional with more than 22 years of experience in compliance, risk management, accounting, system audits, IT consultancy, and digital marketing. He has extensive knowledge of Anti-Money Laundering rules and regulations, and he helps companies comply with legal requirements. Pathik also helps companies generate value from their IT investments.