Financial Action Task Force on Money Laundering

Together, the Forty Recommendations on Money Laundering and eight (now nine) Special Recommendations on Terrorism 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.[9] There are multiple groups to organize the Recommendations; AML/CFT Policies and Coordination, Money Laundering and Confiscation, Terrorist Financing and Financial of Proliferation, Preventive Measures, Transparency and Beneficial Ownership of Legal Persons and Arrangements, Powers and Responsibilities of Competent Authorities and other Institutional Measures, and International Cooperation.[10]

In February 2012, the FATF codified its recommendations and Interpretive Notes into one document that maintains SR VIII (renamed “Recommendation 8”), and also includes new rules on weapons of mass destruction, corruption and wire transfers (“Recommendation 16”).[11]

The FATF's Forty Recommendations on money laundering of 1990 are the primary policies issued by FATF [12] and the Nine Special Recommendations (SR) on Terrorism Financing (TF).[13] The Recommendations are seen globally as the world standard in anti-money laundering as well many countries have made a commitment to put the Forty Recommendations in place. The Recommendations cover the criminal justice system and law enforcement, international co-operation, and the financial system and its regulation.[14] The FATF completely revised the Forty Recommendations in 1996 and 2003.[12] By 1996 the Recommendations had to be updated to include more than just drug-money laundering, as well as to keep up with changing techniques.[15] The 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 has issued Special Recommendations on Terrorist Financing. In October 2001 the FATF issued the original eight Special Recommendations on Terrorism Financing, following the September 11 terrorist attacks in the United States. Among the measures, "Special Recommendation VIII" (SR VIII) specifically targeted nonprofit organizations. This was followed by the International Best Practices Combating the Abuse of Non-Profit Organizations in 2002, released one month before the U.S. Department of Treasury's Anti-Terrorist Financing Guidelines, and the Interpretive Note for SR VIII in 2006. A ninth Special Recommendation was added later.[15] In 2003 the Recommendations, as well as the 9 Special Recommendations were adjusted for the second time.[15] The Recommendations, and Special Recommendations were advocated by over 180 countries.[15]

In February 2004 (Updated as of February 2009) the FATF published a reference document Methodology for Assessing Compliance with the FATF 40 Recommendations and the FATF 9 Special Recommendations.[16] The 2009 Handbook for Countries and Assessors outlines criteria for evaluating whether FATF standards are achieved in participating countries.[17] FATF evaluates a country’s performance based on its assessment methodology that covers: 1. technical compliance, which is about legal and institutional framework and the powers and procedures of the competent authorities, and 2. effectiveness assessment, which is about the extent to which the legal and institutional framework is producing the expected results.[18]

There are many differences between countries dealing with their legal and financial system, which is taking into consideration by the FATF. There is a set minimum of actions that meet a standard, that all countries can use regarding their own situation. This standard covers all actions that a nation should take within their regulatory systems and their criminal justice systems as well the preventive measures that should be taken by specified businesses, professions, and institutions.[19]

For Non-Profit Organizations (NPOs) there has been a command for more financial transparency, to make sure that they do not become easier for terrorist organizations to launder money through the organizations. This hypothesis was thought of by intergovernmental organizations. These intergovernmental organizations include the World Bank, Organization for Economic Cooperation and Development (OECD) and the International Monetary Fund (IMF).[20] Non-Profit Organizations are put under surveillance, especially when they are associated with "suspect communities" or if they are based or working in zones of conflict.[21]

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 Blacklist. 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, terrorism 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. As of October 2006, there are no Non-Cooperative Countries and Territories in the context of the NCCT initiative. However FATF issues updates as countries on High-risk and non-cooperative jurisdictions list have made significant improvements in standards and cooperation. The FATF also issues updates to identify additional jurisdictions that pose Money Laundering/Terrorist Financing risks.[22]

The FATF surveyed 26 jurisdictions to check their ability and willingness to co-operate with other countries in the international fight against money laundering. The Review contained the summaries of these surveys. Fifteen jurisdictions were branded “non-cooperative countries or territories,” because of the high number of harmful practices identified in these jurisdictions.[23]

As of 2019 FATF had 39 full members, comprising 37 member jurisdictions and two regional organisations. The FATF also works in close co-operation with a number of international and regional bodies involved in combating money laundering and terrorism financing.[25]

Regional organisations

Countries and other jurisdictions

As of 2015 FATF had 8 associated FATF style regional members, that have similar objectives of setting up systems to fight terrorism and money corruption:[27]:

Members of the FATF regional bodies that are not full FATF members are entitled to attend FATF meetings as individual member-delegates of the regional bodies and to intervene on policy and operational issues.

30 countries and international organisations are observer organisations. These include the International Monetary Fund, the UN with six expert groups and the World Bank.[36]

Indonesia joined the group of observers that take part in upholding law against money laundering, terrorism and illegal funding. The international organisations recorded have, among other objectives, a specific anti-money laundering aim or function.[37]

There are still compliance issues in areas that might afford exploitative opportunities for transnational crime and terrorist networks. This can have detrimental effects on a country's national security through increasing risks of money laundering and financing of terrorism as well as wastage due to the implementation of inappropriate regulatory measures. The objective is to increase mitigation strategies that would enable scarce resources in fighting money laundering and terrorism financing threats.[39]

The FATF follows strict criteria to identify potential threats.[40]

• Hawala, An Informal Payment System and Its Use to Finance Terrorism by Sebastian R. Müller, December 2006, VDM Verlag, ISBN 3-86550-656-9, ISBN 978-3-86550-656-6
• Michael G. Findley, Daniel L. Nielson and J.C. Sharman (2013). "Using Field Experiments in International Relations: A Randomized Study of Anonymous Incorporation." International Organization, 67, pp 657-693

• Official website
• Eurasian Group on Combating Money Laundering and Financing of Terrorism (EAG) FATF-Style Regional Bodies