Financial Action Task Force (FATF) Recommendations on Combating Money Laundering and the Financing of Terrorism & Proliferation

The Financial Action Task Force (FATF) has issued recommendations to combat money laundering and the financing of terrorism & proliferation. These recommendations aim to prevent financial institutions from being used for illicit activities.

Customer Due Diligence (CDD)

Financial institutions must apply Customer Due Diligence (CDD) measures using a risk-based approach (RBA). The key points are:

• Verify customer and beneficial owner identity: Financial institutions should verify the identity of customers and beneficial owners before or during account opening.
• Complete verification as soon as reasonably practicable: If money laundering and terrorist financing risks are effectively managed, financial institutions should complete verification as soon as possible.

Record-Keeping

Financial institutions must maintain accurate records to comply with information requests from competent authorities. The key points are:

• Maintain records for at least 5 years: Financial institutions should keep all CDD-related records, including copies of official identification documents, account files, and business correspondence, for at least 5 years after the business relationship ends or after the date of the occasional transaction.
• Keep accurate records: Financial institutions must maintain accurate records to ensure compliance with information requests from competent authorities.

Politically Exposed Persons (PEPs)

Financial institutions must have risk-management systems in place to determine whether customers or beneficial owners are PEPs. The key points are:

• Determine PEP status: Financial institutions should gather sufficient information about customers and beneficial owners to determine whether they are PEPs.
• Obtain senior management approval: If a customer or beneficial owner is a PEP, financial institutions must obtain senior management approval for establishing business relationships with them.
• Conduct enhanced monitoring: Financial institutions must conduct enhanced ongoing monitoring of business relationships with PEPs.

Correspondent Banking

Financial institutions must gather sufficient information about respondent institutions to understand their nature, reputation, and supervision quality. The key points are:

• Gather information: Financial institutions should gather sufficient information about respondent institutions to assess their AML/CFT controls.
• Assess AML/CFT controls: Financial institutions must assess the AML/CFT controls of respondent institutions before establishing correspondent banking relationships.
• Obtain senior management approval: Financial institutions must obtain senior management approval for establishing correspondent banking relationships.