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Combating Money Laundering and Terrorist Financing: FATF Recommendations

The Financial Action Task Force (FATF) Recommendations are international standards for combating money laundering and terrorist financing. The FATF is an inter-governmental organization established in 1989 that aims to promote policies to protect the global financial system against threats related to money laundering, terrorist financing, and proliferation financing.

Key Recommendations

The following key recommendations outline the importance of customer due diligence (CDD), record-keeping, and specific measures for certain customers and activities:

Customer Due Diligence (CDD)

• Financial institutions should be required to apply CDD measures under a risk-based approach (RBA) to all new customers.
• Verify their identity and beneficial owner before or during the course of establishing a business relationship.

Record-Keeping

• Financial institutions should maintain records on transactions for at least five years.
• Records must be sufficient to permit reconstruction of individual transactions and provide evidence for prosecution of criminal activity.

Politically Exposed Persons (PEPs)

• Financial institutions should have appropriate risk-management systems to determine whether a customer or beneficial owner is a PEP.
• Take reasonable measures to establish the source of wealth and source of funds.

Correspondent Banking

• Financial institutions should gather sufficient information about respondent institutions.
• Assess their AML/CFT controls and clearly understand the respective responsibilities of each institution.

Aim and Objective

These recommendations aim to prevent money laundering and terrorist financing by ensuring that financial institutions have robust systems in place for identifying and managing risks associated with certain customers and activities.