The Financial Action Task Force (FATF) is an independent intergovernmental body that develops and promotes policies to protect the global financial system against money laundering and terrorist financing.
In its 2021-22 Annual Report, the FATF sets outs its key achievements during the period including strengthening the standard on beneficial ownership, harnessing digital transformation, combatting money laundering and terrorism financing (ML/TF) risks arising from migrant smuggling, issuing sector-specific guidance, and performing mutual evaluations.
Strengthening the standard on beneficial ownership
The FATF first introduced a global standard in 2003 to prevent the concealment of company beneficial ownership information, however there was a low level of implementation globally.
In March 2022, the FATF strengthened this standard to prevent criminals from laundering dirty money through shell companies and other legal persons.
The FATF adopted amendments to Recommendation 24 and its Interpretive Note to ensure greater transparency about the ultimate ownership and control of legal persons and to mitigate the risks of their misuse. The new recommendations include:
- A combination of different mechanisms should be used for the collection of beneficial ownership information.
- Companies should obtain and hold adequate, accurate and up-to-date information on their own beneficial ownership and make this information available to authorities.
- Beneficial ownership information should be held by a public authority or beneficial ownership registry.
Harnessing digital transformation to better mitigate risks
The FATF has prioritised exploring how new technologies can make anti-money laundering and counter-terrorist financing measures faster, cheaper and more effective. Key initiatives in this area included publishing reports and holding conferences that explored how:
- Advanced analytics and machine learning can be used to detect suspicious activities and understand ML/TF risks.
- Technology can strengthen the operations of financial intelligence units, law enforcement and other operational agencies around the world.
- Law enforcement agencies can use technology to successfully investigate money laundering and terrorist financing, mitigate the risks of these crimes and share information in a secure manner.
Combatting ML/TF risks arising from migrant smuggling
The FATF released a report in March 2022 with an updated analysis of the ML/TF risks arising from migrant smuggling, to help countries understand and mitigate the risks, and disrupt and recover the proceeds. Key recommendations from the report include:
- Strengthen bilateral and international cooperation between financial intelligence units and cross-regional cooperation between law enforcement and judicial authorities.
- Conduct more systematic investigations, including parallel financial investigations, into potential money laundering and terrorist financing linked to migrant smuggling.
- Ensure that money and value transfer services comply with all the requirements in the FATF Standards.
- Foster domestic cooperation between the public and private sector.
Issuing sector-specific guidance
The FATF has provided sector-specific guidance including:
- A report that aims to help real estate sector professionals implement risk-based measures to prevent money laundering and terrorist financing. This follows the fourth round of mutual evaluations which demonstrated that the sector generally has a poor understanding of the risks they face.
- An updated guidance which explains how the FATF Recommendations apply to virtual assets and virtual asset service providers (VASPs). The guidance clarifies the definitions of virtual asset and VASP, and explains how the FATF Standards apply to stablecoins. It also addresses the risks of peer-to-peer transactions, and illustrates tools to identify and mitigate these risks.
Conducting mutual evaluations
The Mutual Evaluation process involves extensive peer reviews that assess countries on their compliance with the FATF Recommendations and the strength of their systems to combat ML/TF and proliferation of weapons of mass destruction.
Despite the continued impact of the COVID-19 pandemic on the FATF’s mutual evaluation schedule in 2022, it has published mutual evaluation reports for France, Japan and South Africa. Follow-up reports were published for Canada, China, Finland, Iceland, Ireland, Israel, Mexico, New Zealand, Turkey, and United Kingdom, whereby the FATF has monitored these countries’ progress in improving compliance.
Key takeaways
The Financial Action Task Force (FATF) has made significant progress in protecting the global financial system against money laundering and terrorist financing during the 2021-22 period. The FATF strengthened the standard on beneficial ownership to prevent the misuse of legal entities, explored how digital transformation can improve AML/CFT measures, released a report on mitigating risks arising from migrant smuggling, provided sector-specific guidance, and performed mutual evaluations.
