Financial Crime World

International Standards for Combating Money Laundering and Terrorist Financing

The Financial Action Task Force (FATF) Recommendations are international standards for combating money laundering and the financing of terrorism & proliferation. Founded in 1989 by the G7 countries, the FATF is an inter-governmental organization that develops policies and promotes best practices to protect the global financial system against money laundering and terrorist financing.

Key Recommendations

The FATF Recommendations outlined below cover various aspects of combating money laundering and terrorist financing:

Customer Due Diligence (CDD)

  • Financial institutions should apply Customer Due Diligence measures using a risk-based approach (RBA) to identify and verify the identity of customers and beneficial owners.
  • This involves assessing the level of risk associated with each customer and implementing CDD measures accordingly.

Record-keeping

  • Financial institutions should maintain records on transactions, both domestic and international, for at least five years.
  • These records enable financial institutions to comply swiftly with information requests from competent authorities.

Politically Exposed Persons (PEPs)

  • Financial institutions should take additional measures when dealing with foreign PEPs.
  • This includes:
    • Obtaining senior management approval
    • Establishing the source of wealth and funds
    • Conducting enhanced ongoing monitoring

Correspondent Banking

  • Financial institutions should gather sufficient information about respondent institutions.
  • They should assess their AML/CFT controls, obtain senior management approval before establishing new correspondent relationships, clearly understand respective responsibilities, and conduct CDD on customers with “payable-through accounts”.

Aims of the Recommendations

The FATF Recommendations aim to prevent money laundering and terrorist financing by ensuring that financial institutions have adequate measures in place to identify and mitigate risks associated with suspicious transactions and activities.