Financial Crime World

Combating Money Laundering and Terrorist Financing: FATF Recommendations

The Financial Action Task Force (FATF) Recommendations provide international standards for combating money laundering and the financing of terrorism & proliferation. The following section covers customer due diligence (CDD) requirements for financial institutions.

Key Points: Customer Due Diligence Requirements

  • Customer Due Diligence: Financial institutions should apply CDD measures to identify customers and beneficial owners, verify their identities, understand the purpose and nature of business relationships, and conduct ongoing monitoring.
  • Risk-Based Approach: Institutions should determine the extent of CDD measures using a risk-based approach (RBA).
  • Verification: Verify customer and beneficial owner identities before or during establishing business relationships or transactions for occasional customers.

Non-Compliance

If institutions cannot comply with CDD requirements, they should not open accounts, commence business relations, or perform transactions. They may also terminate existing relationships and make suspicious transaction reports.

Record-Keeping

Institutions should maintain records on transactions and customer information for at least five years to enable swift compliance with information requests from competent authorities.

Special Cases: Enhanced Due Diligence

  • Politically Exposed Persons (PEPs): Financial institutions should apply enhanced CDD measures for PEPs, including obtaining senior management approval, establishing the source of wealth and funds, and conducting ongoing monitoring.
  • Correspondent Banking: Institutions should gather sufficient information about respondent institutions, assess their AML/CFT controls, obtain senior management approval, clearly understand responsibilities, and verify CDD on payable-through accounts.

Preventing Money Laundering and Terrorist Financing

These requirements aim to prevent money laundering and terrorist financing by ensuring that financial institutions have adequate knowledge of their customers and the transactions they undertake.