Financial Crime World

Chile’s Risk-Based Approach to AML/CFT: A Mixed Bag

The latest Mutual Evaluation report by the Financial Action Task Force (FATF) has highlighted both progress and challenges in Chile’s implementation of anti-money laundering (AML) and combating the financing of terrorism (CFT) measures. While Chile has demonstrated compliance with some key standards, it still falls short in other areas.

Strengths

  • Compliance with R.1 - Assessing Risk and Applying a Risk-Based Approach: Chile was found largely compliant with this standard.
  • Effective Financial Intelligence Unit (FIU): The FIU is considered effective in detecting and preventing money laundering/terrorist financing (ML/TF).
  • Progress in implementing targeted financial sanctions related to terrorism (R.6) and terrorist financing (R.5).

Weaknesses

  • Partial compliance with R.2 - National Cooperation and Coordination: Issues with coordination between different government agencies were identified.
  • Non-compliance with R.5 - Terrorist Financing Offence: Weaknesses in Chile’s legal framework were found to be a major concern.
  • Lack of transparency regarding beneficial ownership of legal persons and arrangements (R.24-25).
  • Reliance on third parties (R.17) for AML/CFT measures.

Challenges

  • Insufficient customer due diligence (CDD) requirements: Some financial institutions were found to be failing to conduct adequate CDD on their customers.
  • Weak legal framework regarding confiscation and provisional measures (R.4) and financial institution secrecy laws (R.9).
  • Limited effectiveness in combating ML/TF threats posed by new technologies (R.15).

Recommendations

To address these weaknesses, Chile will need to:

  • Strengthen national cooperation and coordination mechanisms.
  • Improve customer due diligence requirements.
  • Increase transparency in its financial sector.
  • Prioritize the development of its FIU and other law enforcement agencies.

Conclusion

While Chile has made progress in implementing FATF Recommendations, it still faces significant challenges in its risk-based approach to AML/CFT. To effectively combat money laundering and terrorist financing, Chile must address these weaknesses and prioritize the development of its FIU and other law enforcement agencies.