Financial Crime World

Financial Action Task Force (FATF) Recommendations: A Comprehensive Framework for Anti-Money Laundering (AML) and Combatting the Financing of Terrorism (CFT)

The Financial Action Task Force (FATF) has developed a set of 40 Recommendations to combat money laundering and terrorist financing. These recommendations are divided into four main categories, providing a comprehensive framework for countries to implement effective Anti-Money Laundering (AML) and Combatting the Financing of Terrorism (CFT) measures.

A. AML/CFT Policies and Coordination

The FATF Recommendations emphasize the importance of establishing a solid foundation for AML/CFT efforts in each country. This includes:

  • Risk Assessment: Countries should identify, assess, and understand the money laundering and terrorist financing risks for their country.
  • National Cooperation and Coordination: Countries should have national AML/CFT policies and designate an authority or mechanism to coordinate actions to combat money laundering, terrorist financing, and proliferation of weapons of mass destruction.

B. Customer Due Diligence

Effective customer due diligence is crucial in preventing money laundering and terrorist financing. This includes:

  • Customer Identification: Financial institutions and designated non-financial businesses and professions (DNFBPs) should identify customers and verify their identity.
  • Ongoing Monitoring: Financial institutions and DNFBPs should conduct ongoing monitoring of customers to ensure that their activities are consistent with their known risks.
  • Beneficial Ownership: Financial institutions and DNFBPs should obtain information about the beneficial ownership of customers.

C. Record Keeping, and Reporting

Accurate record keeping and timely reporting are essential for detecting and preventing money laundering and terrorist financing. This includes:

  • Record Keeping: Financial institutions and DNFBPs should maintain accurate and detailed records of customer transactions and other relevant information.
  • Reporting Suspicious Transactions: Financial institutions and DNFBPs should report suspicious transactions to the financial intelligence unit (FIU) or other competent authority.
  • Reporting Large Cash Transactions: Financial institutions should report large cash transactions to the FIU or other competent authority.

D. Transparency and Erosion of Beneficial Ownership

Transparency and access to beneficial ownership information are critical in preventing money laundering and terrorist financing. This includes:

  • Beneficial Ownership Registration: Countries should establish a beneficial ownership registration system that requires DNFBPs to register their beneficial owners.
  • Beneficial Ownership Information Sharing: Countries should ensure that beneficial ownership information is shared with relevant authorities and financial institutions.
  • Cross-Border Cooperation: Countries should cooperate with each other to share beneficial ownership information.

The FATF Recommendations provide a comprehensive framework for countries to implement effective AML/CFT measures, but it’s worth noting that the recommendations are quite detailed and extensive.