2004 FATF Methodology Assessment: Key Takeaways

Overview of the New Methodology

The 2004 FATF Methodology assessment evaluates countries’ compliance with anti-money laundering (AML) and combating the financing of terrorism (CFT) regulations. The new methodology has more detailed criteria than its predecessor, including:

• Over 200 essential criteria
• 20 sub-criteria
• 35 additional criteria

Key Differences between Old and New Methodologies

The new methodology has significant differences from the old one, particularly in Special Recommendations III-VII, which concern terrorist financing. These changes include:

• Strengthened and expanded preventive measures for financial institutions
• Designated non-financial businesses and professions that require preventive measures:
  • Casinos
  • Real estate agents
  • Dealers in precious metals and stones
  • Lawyers
  • Notaries
  • Accountants
  • Trust and company service providers
• More explicit and detailed requirements for setting up a Financial Intelligence Unit (FIU)
• Enhanced international cooperation, including:
  • Mutual legal assistance (MLA)
  • Non-MLA cooperation

Assessment Results

The assessment results show that overall compliance ratings have decreased compared to the old methodology:

• Compliance level has fallen from 62% to 45% for the sample assessed under the new methodology
• Non-compliance rates have increased for both AML and CFT Recommendations
• High-income countries had significantly lower compliance levels under the new methodology, while middle-income countries showed higher ratings

Implications of the Results

The results suggest that the expansion of the standard and greater precision of the methodology may have had a greater effect on established AML/CFT regimes, particularly in high-income countries. Effective implementation is required to comply with the new methodology, beyond mere adoption of laws, regulations, and other measures.